KEY POINTS:
The New Zealand dollar set a post-float high today in hectic trading and dealers expect a new level above US75c to be set overnight.
The kiwi traded up to US74.95c at 4.30pm, a cent higher than its close on Friday before the long weekend. It closed on US74.90c.
"It looks like we'll have a look above US75c in London," said Murray Hindley, chief dealer at ANZ Bank.
The NZ currency was floated 22 years ago in March 1985 at a level of US44.4c -- 69 per cent below today's level.
Today's level is the kiwi's highest since 1975, with the NZ dollar last above US75c when Sir Robert Muldoon first became Prime Minister and the country ran a so-called crawling peg currency.
Mr Hindley said traders were buying any dips today, particularly after the Asian market opened.
He said the liquidation of long Australian dollar short kiwi positions, begun on Friday and continued today after the long weekend, had spurred the latest upward spurt.
The kiwi hit a one month high against the Australian currency, nudging A90c, but it was firm against all currencies, hitting a 15-month high against the euro and a 17-year high against the yen.
It closed on A89.63c from A89.35c at Friday's close.
Against the euro it rose to 0.5550 from 0.5498 and against the yen it was up at 91.27 from 90.65.
The NZ dollar trade-weighted index closed on 72.83, its highest level apart from a brief spell in December 2005. It closed on Friday on 72.12.
Dealers said fears Reserve Bank governor Alan Bollard will hike interest rates again on Thursday was putting further upward pressure on the currency.
When he last raised interest rates, in late April, Mr Bollard described the level of the NZ dollar as "exceptional and unjustified" -- two key criteria giving the bank the green light to exercise its recently approved power to intervene in the currency market.
That warning initially sent the kiwi down, but was largely ignored by foreign players.
Mr Hindley said whether or not Mr Bollard raises rates again, most interest will centre on the tone of his commentary.
"It's certainly going to be hawkish, so we are going to see continued currency strength," he said.
BNZ currency strategist Danica Hampton said the NZ dollar had the dubious honour of being the strongest performing currency last week and that had continued today.
The kiwi had shrugged off Friday's stronger than expected US payrolls release and instead climbed to a six-week high, Ms Hampton said today.
Ironically, rebounding US growth was one of the factors behind the New Zealand currency's recent rise, she said.
It had boosted investors' risk appetite and reinvigorated demand for carry trades -- where investors borrow in low-yielding currencies such as the yen and invest in higher-yielding assets such as the kiwi.
A range of offshore funds, models and momentum-driven funds had also been heavy buyers of the kiwi against the greenback, she said.
Many of those short-term speculative accounts were looking to trim short NZ dollar positions ahead of Thursday's Reserve Bank decision.
A 5 per cent sell-off in Chinese equities overnight failed to dent sentiment towards carry trades.
ANZ said high yielding currencies remained in hot demand.
In major currency trading, the US dollar was little changed.
Traders said it would continue to suffer against the euro given that euro rates are expected to rise this week.
They said the recent round of Chinese equity losses was not enough to spur a global slide in a repeat of a sell-off in February, when stock losses prompted investors to trim risk exposure, igniting a round of yen short covering to unwind carry trades.
"So long as the effect of Chinese stock losses don't trickle into global markets, they will probably have limited impact on the yen," said Masafumi Yamamoto, currency strategist at Nikko Citigroup.
Reuters currency rates:
5pm today 4.30pm Friday
NZ dlr/US dlr US74.90c US73.96c
NZ dlr/Aust dlr A89.63c A89.35c
NZ dlr/euro 0.5550 0.5498
NZ dlr/yen 91.27 90.65
NZ dlr/stg 37.61p 37.37p
NZ TWI 72.83 72.12
Australian dollar US83.57c US82.88c
Euro/US dollar 1.3502 1.3452
US dollar/yen 121.78 121.83
- NZPA