WELLINGTON/SYDNEY: The New Zealand dollar rose on Thursday after the central bank warned interest rates will likely rise soon, while fears of euro zone contagion and uncertainty about US debt talks kept the Australian near a 29-year high.
The kiwi dollar rose as high as $0.8735, after the Reserve Bank of New Zealand held rates at 2.5 percent but flagged a rate hike in the near future as the economy gathers pace and inflation pressures rise.
A Reuters poll taken after the decision showed a majority of analysts forecasting a 50 basis points rate hike in September, but predicted that subsequent rate rises would be more muted.
Financial market pricing now implies a 96 percent chance of a 25 basis point rise in September and sees a total tightening of 101 basis points over the next 12 months.
The kiwi rise, however, was constrained by comments from Reserve Bank Governor Alan Bollard about the strength of the local currency acting as a drag on the economy.
The New Zealand dollar has risen more than 12 percent this year, trading near a 30-year peak, while the trade weighted NZ dollar , the RBNZ's preferred currency measure, is near a four-year high.
"The RBNZ gave a pretty clear indication in that statement that they'll go 50 basis points in September, which counterbalanced comments around the strength of the kiwi," said BNZ currency strategist Mike Burrowes.
Whether the kiwi can push on to test new heights will depend largely on how the impasse over the debt ceiling is resolved, Burrowes said.
Support for the kiwi, which was last traded at $0.8721, is seen at the hourly overnight low of $0.8680, with the new high of $0.8766 the first line of resistance ahead of $0.8800.
Across the Tasman sea, the Aussie also shined, with a gain of 0.3 percent to $1.1059 as investors dumped the euro and regional stocks on renewed contagion fears in the euro zone.
"It was a pretty good performance for the Aussie given the mixed results in Asia today... It also received support from an hawkish RBNZ," said Greg Gibbs, currency strategist at RBS.
Asian stocks slid more than 1 percent on fears of a US debt default or downgrade and Europe's own sovereign borrowing crisis.
The Aussie hit a fresh 29-year peak of $1.1081 during the offshore session as investors flocked to currencies backed by stronger economies.
The Australian dollar also marched higher against almost everything from the yen, euro, Swiss franc to kiwi, and broke a 26-year peak against the British pound at A$1.4796 .
It has been thwarted by the wave equality resistance at $1.1083, yet it could still push to the top of an uptrend channel in the monthly charts at $1.1150, according to a trader.
Minor support is seen at $1.1000-10, then $1.0950 ahead of major support at $1.0890.
An alarmingly high inflation reading out on Wednesday has forced the futures market to abandon all hope of a cut in interest rates this year and price in some chance of a hike as early as next week. This is a sharp turnaround from just two days ago when the interbank market was heavily betting on an easing, mostly due to global uncertainty.
Market pricing implies now only a one-in-5 chance of an Australian hike next week and still has 18 basis points of easing for the next 12 months , though that is down from 40 basis points earlier in the week.
The Reserve Bank of Australia (RBA) is seen in a tricky position since it recently said it would be prudent to wait a while before hiking, given a patchy domestic economy and uncertainty abroad.
Australian bond futures were mixed with the three-year contract off 0.010 points to 95.470, while the 10-year gained 0.05 points to 95.07.
Copyright Reuters, 2011
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