The New Zealand dollar rose to a three month high today despite weaker than forecast June quarter retail sales figures.
The Statistics New Zealand figures showed sales fell a seasonally and inflation-adjusted 0.5 percent, a bigger drop than the 0.3 percent fall expected by economists.
"The kiwi's had a very bid tone," ANZ Investment Bank chief dealer in New Zealand Murray Hindley said.
The New Zealand dollar was already strong in weekend trading and continued to climb after the retail sales, ending on US63.70c compared with US63.29c at Friday's close.
Mr Hindley said he expected the kiwi to retest US64.20c and it now had good support at US63.20c.
The kiwi made ground on the Australian dollar, finishing on A83.01c from A82.62c on Friday evening.
Against the euro, it rose to 04995 from 0.4969 while the TWI rose to 63.59 from 63.27.
Traders said higher-yielding currencies, such as the NZ dollar, were in demand for the carry trade, where investors borrow in a low-yielding currency to buy high-yielding ones, while traditional funding currencies like the yen and the Swiss franc had been consistently sold.
"The talk in the market is that people are looking for yield in the Canadian dollar, Australian dollar, New Zealand dollar and South African rand, using Swiss and yen to finance it," said a trader with a US proprietary trading firm.
Persistent use of carry trades caused the Swiss franc and yen to be significantly undervalued by some measures and others like sterling and the Australian dollar to be overvalued, BNP Paribas analysts said.
In major currency trading, the US dollar steadied, keeping most of the gains made after surprisingly strong US retail sales data late last week stoked expectations that the Federal Reserve could resume bumping up interest rates.
After raising rates 17 straight times, the Fed left its funds rate at 5.25 percent last week but kept the gate open for more credit tightening if price pressures persist.
"The dollar's yield advantage over other currencies and expectations that US interest rates may be further boosted are making it easier for investors to buy the dollar," said Nobuo Ibaraki, forex manager at Nomura Trust and Banking.
For more clues about the Fed's next move, market players were focusing on this week's US inflation data, including producer price data on Tuesday and consumer prices on Wednesday.
Reuters currency rates:
5pm today 5pm Friday
NZ dlr/US dlr US63.70c US63.50c
NZ dlr/Aust dlr A83.01c A82.62c
NZ dlr/euro 0.4995 0.4969
NZ dlr/yen 74.07 73.32
NZ dlr/stg 33.60p 33.52p
NZ TWI 63.59 63.27
Australian dollar US76.74c US76.87c
Euro/US dollar US1.2752 US1.2777
US dollar/yen 116.29 115.46
- NZPA Reuters
<i>Currency:</i> NZ dollar continues to firm after retail sales data
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