New Zealand dollar advances to 22-year highs

The New Zealand dollar strengthened to 22-year post-float highs on Monday, lifted by steady buying by Japanese investors seeking high yielding currencies. The kiwi touched $0.7760, its highest level since it was floated in 1985, and traders said the risks were pointed to the upside given the possibility the central bank could raise interest rates again.
"We see risks NZD will test $0.80 sooner rather than later," said RBC Capital Markets senior currency strategist Sue Trinh. The kiwi was at $0.7752/62 from $0.7691/01 in late local trade on Friday. Traders said buying related to Japanese investment trusts was a key driver for the kiwi's rise, sending the currency up to a 20-year peak of 95.55 yen.
The yen slipped after the Bank of Japan's key business sentiment tankan survey came in line with economists' forecast, suggesting the country's relatively low interest rates would rise only gradually.
On a trade-weighted basis, the New Zealand dollar also hit an all-time high of 75.19. With no significant local data due until NZ Institute of Economic Research's quarterly survey of business opinion on July 10, the kiwi's short-term direction will likely be determined by offshore factors. Traders speculate the Reserve Bank of New Zealand could intervene to curb the New Zealand dollar's strength, although the impact was likely to be limited.
"RBNZ's intervention efforts are increasingly seen as futile, and the market is seriously underestimating the risk of further RBNZ tightening this cycle," said Trinh.
The central bank has stepped in to sell the kiwi on three occasions since June 11, when it intervened for the first time since the currency was floated. Some players think the central bank could intervene on Wednesday when US markets will be closed for a public holiday. The RBNZ has chosen to enter the market at times when it has been in a slow trading period, such as market holidays.
Most economists in a Reuters poll think the RBNZ will not raise interest rates further after lifting them by a total of 75 basis points this year, with a median risk for a rise to 8.25 percent at its next review put at around 30 percent.
New Zealand bonds were slightly firmer, in line after US Treasuries. The yield on the benchmark NZ 10-year government bond nudged down to 6.70 percent.