The Japanese 'carry trade' has continued to boost the values of the Australian and NZ dollars, which yesterday hit new 22 year highs in trading in Australasia.
The huge interest rate differentials between Japan's official 0.5 per cent and New Zealand's Official Cash Rate of 8 per cent and our cash rate of 6.25 per cent, are driving the surge in currencies.
The Australian currency traded at 84.92 US cents in Sydney yesterday, up from 84.72 cents in New York June 22 last Friday.
It reached 84.99 US cents, the highest since February 1989. The Aussie also reached 105.18 yen after (It hit 105.38 yen, late last week, the highest since October 1991.)
The dollar eased to 84.66 USc in New York overnight after touching the 85 USc mark briefly. It was back above 84.70 USc this morning in local trading.
Investors showed some nervousness about high yield investments and sought the safety of the US Government bond market. Yieldson US10 year bondstumbled to 5.09% from around 5.14% last Friday.
Across the Tasman, the New Zealand dollar bought 76.62 US cents from 76.39 late in New York last Friday, and reached 76.85 US cents.
That's the highest since being allowed to float in March 1985. It was also just below the 95.22 yen hit last week, which was the highest against the yen since October 1987.
It closed at 76.48 USc in New York.
Citigroup yesterday said global economic growth will spur demand for the commodities the countries export and that in turn will see both currencies higher as 2007 goes on: the Aussie to 87 US cents, the Kiwi to 75 USc.
But there is a contrast in the way the rise in both currencies is being treated by the central banks of both countries.
Australia's is relaxed and looks at the rise as an anti-inflationary tool that has more benefits than negatives, even though it will trim gains made by exporters.
That was seen in yesterday's resources outlook paper from the Federal Government's main forecaster in commodities, the Australian Bureau of Agricultural and Resource Economics (see story below).
Across the Tasman, the Reserve Bank of New Zealand has intervened at least twice to try and put a cap on the Kiwi's rise and both times (around $1 billion was spent in sales on the holiday Monday of the long weekend at the start of June) it has proved to be futile.
There were unconfirmed reports of more intervention yesterday.
The RBNZ's June 11 intervention was the first and only one it has announced since it set up a fund to stabilize the currency in 1988.
