The Australian dollar edged ahead on Monday as the head of the country's central bank signalled he was comfortable with the currency's steep rise in recent weeks, removing the risk that policy makers might actively try and restrain its appreciation.
The Aussie was up 0.1% at $0.6841 AUD=D3 and above last week's trough at $0.6777. While it failed to maintain the recent 11-month top of $0.7069, it is still up 24% from the 17-year low of $0.5510 touched during the market mayhem of March.
The scale of that rally, and its potential drag on exports, had led dealers to wonder if the Reserve Bank of Australia (RBA) might try to talk the currency down.
But RBA Governor Philip Lowe on Monday said that, while he would like a lower currency, it was "hard to argue" the Aussie was overvalued given the strength of key Australian export prices, notably for iron ore.
Lowe also reiterated his optimism that the economic downturn in Australia would not be as dire as first feared given the country's success in containing the coronavirus.
Figures out last week showed retail sales rebounded by a record 16.3% in May as shops re-opened and distancing rules were relaxed, helping offset weak employment data.
Still, Lowe emphasised rates would remain at 0.25% for some years to come, keeping three-year bond futures YTTc1 steady at 99.725 to imply an yield of 0.275%.
New Zealand has also done well in suppressing the virus allowing it to re-open pretty much the entire economy and helping the kiwi hold at $0.6417 NZD= compared to a March trough of $0.5469.
That success should be noted by the Reserve Bank of New Zealand (RBNZ) at its policy meeting on Wednesday, though it is still expected to pledge to keep policy super easy for a long time to come.
"The commentary must strike a balance of cautious optimism, but a willingness to do more when needed," said Jarrod Kerr, chief economist at Kiwibank, noting that too much optimism might send the kiwi even higher and tighten financial conditions.
Instead, the bank could again mention the chance of shifting to negative interest rates at some point, if only to hinder further gains in the kiwi.
"We still believe the RBNZ will be forced to do more to get the economy humming into 2021," Kerr said.
