The New Zealand dollar rose to a fresh post-float high today but it lost ground against the Australian dollar when that currency rocketed to a new high in reaction to strong inflation data.
The NZ dollar rose to US87.61c, beating the post-float high of US87.40c at 11pm yesterday. It then drifted lower and was at US87.49c at 5pm from US86.93c at the same time yesterday.
The Australian dollar rose to a 29-year high of US$1.1063 after Australia's consumer price index rose 0.9 per cent in the June quarter, beating economists' forecasts for a gain of 0.8 per cent.
"The Australian CPI came in a lot stronger than expected," said Mike Hollows, director of trading at HiFX.
"The market was mixed about which way the dice was going to fall but the interest rate market had been pricing in some chance of a rate cut in Australia.
"The strong CPI just blew that out of the water," he said.
As the Australian dollar rose the NZ dollar rose. But it lost ground against the strong Australian dollar, dipping to US78.88c in afternoon trading. It was at A79.13c at 5pm from A79.53c at 8am and A79.63c at the same time yesterday.
Attention is now focused on tomorrow's Reserve Bank of New Zealand interest rate decision. The current 2.5 per cent official cash rate (OCR) is seen as an "emergency" level, set to stimulate the economy at a time of crisis.
National Bank of New Zealand economists are calling for a rise in interest rates after the bank's latest business confidence survey revealed strong confidence and inflationary pressure in the construction sector.
Overall, a net 48 per cent of respondents expected general business conditions to improve in 12 months' time in the June survey, which was little changed from a net 47 per cent in May.
A net 44 per cent of businesses anticipated an increase in activity, up five points on June.
National Bank economists argued that an emergency policy setting for the OCR was no longer required.
"The Reserve Bank of New Zealand's June assumption of subdued construction cost inflation looks wishful thinking," the report said.
Mr Hollows said that "the tricky thing for the RBNZ is how do they raise rates without appreciating the currency".
Also, a warning from President Barack Obama that failure to raise the US borrowing limit by the August 2 deadline would severely hurt the nation sparked selling of the US dollar and tarnished its traditional safe-haven appeal.
The US dollar hit a record low versus the Swiss franc, and fell to its lowest level against the yen since mid-March, it lowest level against the Canadian dollar since November 2007, and its lowest level against the Australian dollar since May.
The NZ dollar was at 68.10 yen from 67.86 yen at the same time yesterday and was slightly firmer against the euro.
The trade weighted index was at 74.24 from 74.12 at 8am from 74.07 at 5pm yesterday.