WELLINGTON: The Australian and New Zealand dollars trailed an invigorated euro on Monday on optimism the euro zone may have turned the corner in its debt crisis, but hovered near multi-year highs against the yen as investors expected more monetary easing in Japan.
The euro had broadly rallied on Friday as data showed European banks are repaying more than expected in loans this week, signalling some stabilisation of the region's financial system.
It settled around A$1.2900 from around A$1.2925, after hitting an eight-month high of A$1.2940 on Friday. It was firm on the New Zealand dollar at $1.6090, just shy of the month high of NZ$1.6120.
"However, the medium-term picture is one of consolidation, rather than trend, and we remain deeply sceptical on Europe, which faces considerable challenges," ANZ Bank analysts said in a market note.
Activity was thind with Australian markets closed for a national holiday and part of New Zealand shut on a regional holiday.
However, the Aussie and kiwi fared better against the yen, where they flirted with near four-and-a-half year highs, touched earlier this month.
The Aussie was at 94.96 yen, just below the session high, while the kiwi was at 76.35.
The two currencies have bounded to levels last seen in August 2008, on expectations that massive Japanese fiscal stimulus and further monetary easing will continue to weigh on the yen.
Against the US dollar, the two Pacific currencies were rangebound, with the Aussie steady around $1.0420, holding above the 100-day moving average support.
The kiwi was steady around $0.8360, with concerns about the safety of New Zealand milk products, a key export earner, appearing to fade as producer Fonterra said it had allayed clients' concerns.
A key local event this week is the Reserve Bank of New Zealand's first rate review of the year on Thursday, with unanimous expectation that it will hold rates at a record low for a 15th consecutive month.
Market pricing implies a flat rates outlook over the next 12 months in New Zealand, in contrast to Australia where the chance of a cut at next week's meeting is put at one-in-three, and rates are seen 50 basis points lower over the coming year.
Other data due this week includes Australian business conditions, producer prices, and trade prices, while New Zealand also has trade, building and migration numbers.
New Zealand government bonds closed soft, with yields 4 basis points higher across the curve, tracking losses in US Treasuries on Friday.
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