KEY POINTS:
The strength of the New Zealand dollar caused fresh concern in the export sector today as it spiked to a 14 month high above US71c.
The kiwi has been rising on expectations that Reserve Bank Governor Alan Bollard will hike interest rates again on Friday.
This, despite monetary conditions tightening significantly thanks to the currency's rise. The old Monetary Conditions Index, a ratio of the currency and interest rates, was not far from all-time highs.
The kiwi closed at US71.08c against US70.85c at 5pm yesterday.
Its move higher came as the greenback slipped against the yen and traded within sight of nearly two-month lows against the euro on expectations US data this week could support the case for US interest-rate cuts by the Federal Reserve.
Locally, ammunition for Dr Bollard to hike rates came from the National Bank's monthly survey of business showing confidence was rising.
However, the bank's survey of expectations out today showed inflation expectations for the next two years had eased.
The kiwi also peaked against the Australian dollar, topping A89.70c but still lower than levels reached in late-January. It closed on A89.52c from A89.46c yesterday.
The trade-weighted index closed on 70.12 from 70.01.
BNZ currency strategist Danica Hampton said trade data yesterday and the National Bank survey had reinforced the idea of strong demand and underlying inflation pressures, increasing the likelihood of the Reserve Bank raising interest rates.
However, ANZ Bank said it would become increasingly difficult for the kiwi to go higher from here.
It forecast selling interests to emerge near US71.30c.
The US dollar hit a two-month low against the euro and slipped against the yen amid growing tensions regarding Iran's nuclear programme.
Market participants said traders were beginning to shift gear after pummelling the low-yielding yen and were turning some of their focus to the US economy and the effect of a cooling in the housing sector, as well as geopolitical concerns.
"Focus had been on the yen until now, but the market is realising that the dollar isn't doing all that well either," said a trader at a major Japanese trading house.
Concerns about Iran, which is suspected of planning to develop nuclear weapons, briefly pushed the euro up to US$1.3205.
Reuters currency rates:
5pm today 5.05pm yesterday
NZ dlr/US dlr US71.08c US70.85c
NZ dlr/Aust dlr A89.52c A89.46c
NZ dlr/euro 0.5390 0.5374
NZ dlr/yen 85.63 85.68
NZ dlr/stg 36.20p 36.10p
NZ TWI 70.12 70.01
Australian dollar US79.41c US79.22c
Euro/US dollar 1.3185 1.3191
US dollar/yen 120.44 120.88
- NZPA