SYDNEY/WELLINGTON: The Australian dollar powered to a fresh 29-year peak on Thursday as a dovish Fed undermined its US counterpart, while the New Zealand dollar took a knock when the RBNZ said rates would not be going up for some time.
The Aussie bulldozed past option barriers at $1.0900 to hit a session high of $1.0948, gaining nearly a full cent from the New York close. It last traded at $1.0930.
The local currency has the $1.1000 objective well within its sights, underpinned by strong buying from Asian central banks keen to diversify their flows, according to traders. The Aussie is also seen as a proxy for illiquid Asian currencies.
Some analysts think it go even higher thanks to the strong relationship between the Australian dollar and the country's booming terms of trade.
"The terms of trade and the AUD/USD hold a close positive correlation. The further gains in the terms of trade means we would expect the AUD could scale as high as $1.1500 in the first half of this year," said Besa Deda, chief economist at St. George Bank.
Australia's terms of trade are near record high and fuelling a massive pipeline of mining investment, a major reason the Reserve Bank of Australia (RBA) has lifted rates by 175 basis points since 2009.
While many analysts have been calling for a correction in the Aussie, which gained whopping 12-cents since mid-March, others are not so sure.
"There is no obvious catalyst to turn the trend," said
Greg Gibbs, strategist at Royal Bank of Scotland. "I think it could overshoot significantly, though it should pause around $1.1000."
Support for the currency is seen at $1.0813, with resistance lined up at $1.0949, $1.1000 and $1.1082.
The Aussie has received fresh buying momentum from higher-than-expected domestic inflation data on Wednesday with markets now pricing in a greater chance of a rate hike this year.
It also received a further boost after the Fed Reserve signalled it would keep policy ultra-loose for an extended period and reinvest maturing debt in its balance sheet. The US dollar plumbed a fresh three-year low against a basket of currencies at 73.055.
A broadly weaker yen propelled the Aussie to a near three-week high of 89.63 yen, within sight of a major psychological barrier at 90 yen.
The New Zealand dollar had a volatile session, falling sharply after the country's central bank left its key rate on hold at 2.50 percent before recouping some losses.
It bounced back to $0.8060, after it had initially dropped almost three quarters of a cent to around $0.8003.
NZ swap rate yields fell and interest rate future prices rose solidly, which they later pared, as markets initially trimmed their view on future rate hikes.
Some in the market had been betting RBNZ head Alan Bollard would sound more hawkish.
"It was quite a vicious fall but people were positioned for possibly Bollard to keep talking things up, but he didn't so after the first fall it spent the rest of day crawling back," said Westpac senior strategist Imre Speizer.
He said part of the kiwi's fall was an unwinding of some of the previous day's hefty gains when it was dragged higher after Australia's inflation data.
Bollard's latest rate statement said it was appropriate to keep rates at their current record low level for some time to aid recovery from the Christchurch earthquake.
Near-term support for the kiwi is seen at $0.8000 with resistance at $0.8110, with a concerted move above that confirming the recent uptrend.
"It broke strongly through previous resistance and we're pretty bullish on kiwi for the week ahead. We may be looking at a move to a post float high," Speizer said. The kiwi, which was floated in March 1985, hit a high of $0.8215 in March 2008.
However, it could still not keep up with the neighbouring Aussie, which catapulted to a one-month high of NZ$1.3571, before settling at NZ$1.3530. The rise reflects the countries' different economic outlooks.
New Zealand has March trade data on Friday with expectations the annual surplus will shrink to NZ$500 million, from NZ$760 million.
New Zealand government bonds closed with a firm tone with yields four basis points lower. Interest rate future prices closed up to 6 ticks higher. Market pricing implied 60 basis points of tightening over the next 12 months, having tumbled to as far as 42 basis points immediately after the RBNZ statement from 63 bps.
Australian bond futures rose with the three-year contract up 0.03 points to 94.890 while the ten-year contract gained 0.015 points to 94.550.
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