NZ dollar rallies, Govt bond yields push higher still

A commodities rally has driven the NZ and Aussie dollars higher. Photo / Getty Images

The rally in commodities prices has driven the New Zealand and Australian dollars sharply higher over the last month.

New Zealand bond yields have also pushed up in line with a more aggressive stance on inflation taken by the US Federal Reserve early this week.

Gains in the Aussie and the Kiwi were against the background of a weaker US dollar.

The Kiwi traded today at US69.51c - up from US67.46c early last week and its highest point since late last November.

The local currency is now well clear of its low point in late January of US65.48c.

It was a similar story for the Aussie dollar, which traded at US74.56c, well off its January lows and back at late November 2021 levels.

High oil prices have sparked further increases in already strong commodities prices, particularly for those important to New Zealand and Australia - dairy and iron ore.

Westpac senior markets strategist Imre Speizer said stronger commodities prices were driving the Kiwi and Aussie higher.

Commodities prices have been surging and that trend is probably not over, Speizer said.

"Aussie and Kiwi have been the two standout currencies over the last month, along with the Norwegian krone and the Canadian dollar to a lesser extent," he said.

Speizer added the Aussie and the Kiwi had less political risk attached to them than the likes of the Canadian dollar and the krone.

"The Aussie and Kiwi have been singled out for special attention by the currency punters and they have been buying."

Currency speculators still see further potential upside for the Kiwi and the Aussie, he said.

"How far? Over the next two months I can see the Kiwi taking out US72c and so there is quite a bit to come," Speizer said.

Fed chairman Jerome Powell said this week the US central bank was prepared to raise interest rates in half-percentage-point steps to slow the economy if it concluded such steps were needed to bring down inflation.

His comments led to a big sell-off in the world bond markets, sending prices lower and yields higher.

The Fed's stance has lent more weight to the view that the Reserve Bank of NZ will soon hike its official cash rate - currently at 1.0 per cent - by 50 basis points.

Current market pricing suggests that there is a 70 per cent chance that the bank will do just that at its next opportunity on April 13.

Local bond yields have been sharply higher across the curve following Powell's statements.

NZ Government 10-year bond yields are now at 3.34 per cent - their highest point since late 2016.

Five-year bonds are at 3.175 per cent and the two-years are at 2.857 per cent - both levels not seen since 2015.