The New Zealand dollar climbed to a two-year peak on Monday as domestic data on retail sales blew past all expectations, quashing the risk of further policy easing and underlining the currency's yield attraction.
The kiwi dollar jumped 0.4% to $0.6961 NZD=D3 and cleared peaks from January and March 2019. It was now tantalisingly close to a $0.6969 high from December 2018, a break of which would take it to levels not seen since June of that year.
The Australian dollar was dragged higher in its wake to reach $0.7320 AUD=D3 , though that was short of recent peaks and major resistance at $0.6939.
The gains came as data showed real retail sales in New Zealand boomed by a record 28% in the third quarter, recovering strongly from an historic 14.6% drop the previous quarter when a strict coronavirus lockdown crippled consumption.
That was far above market expectations and suggested upside risk to the gross domestic product (GDP) report for the third quarter due next month.
"Today's result is another tick in that column, highlighting the resilience in household spending appetites," said Satish Ranchhod, a senior economist at Westpac.
"This also highlights the effectiveness in monetary and fiscal stimulus in supporting demand through what has been a trying time for the economy."
Indeed, so robust has been the recent run of data that investors have sharply scaled back expectations for further easing by the Reserve Bank of New Zealand (RBNZ) and all but given up on the chance of negative interest rates.
As a result, yields on 10-year bonds NZ10YT=RR have surged to 0.82%, from just 0.56% at the start of the month. In turn, the spread with U.S. 10-year yields has swung from -34 basis points to zero and removed one drag on the kiwi.
The spread with Australian bonds has gone much the same way, toppling the Aussie to NZ$1.0520 AUDNZD= from a high of NZ$1.0760 early in the month.
Australian 10-year yields were at 0.86% AU10YT=RR , having backed away from a recent peak at 1.00%. Three-year bond futures YTTc1 held at 99.830, near the Reserve Bank of Australia's (RBA) 0.10% target for cash yields.
