The New Zealand dollar held onto its gains against the greenback but political uncertainty will likely keep it capped with investors awaiting an announcement on the country's next government.
The kiwi was trading at 71.72 as at 5pm in Wellington versus 71.66 US cents as at 8am in Wellington and 71.65 cents in late New York trading on Friday. The trade-weighted index rose to 75.30 from 75.04 last week.
The New Zealand dollar benefited after weaker-than-expected US inflation hurt the US dollar at the end of last week but may not push much higher until a new government is formed. Acting Prime Minister Bill English told Radio New Zealand it could take until the end of the week to confirm the country's next government as there are still outstanding issues and further talks are needed before a government can be formed.
The kiwi had a "stronger end to the week on the back of the US dollar move and we have really just maintained that," said ANZ senior economist Phil Borkin. "Our view is that further gains from here, until we get political clarity, look a stretch. We are more biased to it easing off a little bit. It's a harder road higher from here, even in the context of a weaker US dollar."
Borkin said that tomorrow's third-quarter domestic inflation numbers could move the currency around if they are a surprise but any moves were likely to be temporary.
Economists expect inflation was 0.4 per cent in the three months ended September 30, for an annual rate of 1.8 per cent, according to the median in a poll of 13 economists surveyed by Bloomberg. That compares to the central bank's projection of inflation of 0.2 per cent in the third quarter for an annual rise of 1.6 per cent.
Borkin said even if the headline inflation is higher than expected the details will show that core inflation is still tepid and the data is unlikely to sway the central bank, which has signaled interest rates are likely to remain on hold at a record low 1.75 per cent until September 2019 at the earliest.
The kiwi traded at 91.06 Australian cents from 90.93 cents on Friday in New York. It traded at 4.7170 yuan from 4.7135 yuan and at 80.26 yen from 80.13 yen. The kiwi traded at 53.96 British pence from 53.81 pence in New York and at 60.75 euro cents from 60.58 cents.
New Zealand's two-year swap rate was down 1 basis point at 2.18 per cent, and 10-year swaps were down 4 basis points to 3.19 per cent.