KEY POINTS:
The New Zealand dollar climbed against the Australian dollar today after weaker than expected inflation data diminished chances of an interest rate rise across the Tasman.
The kiwi had already made good gains based on yesterday's much lower than expected producer price index and when Australia's March quarter consumer price index (CPI) was a 0.1 per cent rise against median forecasts of 0.6 per cent it was a signal to sell the aussie.
The kiwi was sold with it against the greenback -- dipping to US73.93c from its US74.50c opening -- but it partially recovered to finish on US74.13c.
The kiwi-aussie cross rate rose to A89.92c from its A89.60c opening. Apart from a brief spell in February when it was above A90c, that is the highest level in over a year.
The Australian dollar dropped the best part of one US cent to US82.53c as fears of a rate rise next month dissipated.
The local market goes into the Anzac holiday on tenterhooks, with economists divided on whether Reserve Bank governor Alan Bollard will hike rates again at 9am on Thursday. Economists polled by Bloomberg are 8:6 in favour of Dr Bollard sitting tight.
The kiwi weakened on all other major crosses and the trade-weighted index closed lower on 71.81 from 71.86 yesterday.
Offshore participants were slowly digesting all the negative press around higher NZ interest rates, ANZ said. That would slow any ascent of the kiwi after the Reserve Bank decision on Thursday.
The Australian dollar dragged down other major currencies including the euro.
The yen was also supported by short covering ahead of Japan's Golden Week holidays starting next week and before key data and the Bank of Japan's monetary policy meeting on Friday.
"One clear trend in the last two sessions has been a correction in the Australian dollar against the yen, which is capping the euro's rise against the yen as well as weighing on the euro against the dollar," said Hiroshi Niwa, president of Phoenix Securities.
The euro fell 0.2 per cent against the US dollar to US$1.3555 relieving the dollar from a two-year low of US$1.3638 touched last week.
"More Japanese investors are shorting the dollar but remain long on currencies such as the Australian dollar and sterling," Niwa said.
The euro's fundamental strength is also intact while the outlook for the US dollar appeared increasingly grim, traders said.
The dollar has been weighed down by expectations that the Federal Reserve will have to cut interest rates later in the year, as market players worry that problems in the housing sector could weigh on consumer sentiment and hobble growth.