SYDNEY The New Zealand dollar rallied on Thursday after the country's central bank lifted interest rates and signaled more hikes ahead, while caution ahead of a speech by the European Central Bank kept the euro subdued.
The kiwi climbed more than a third of a U.S. cent to a high of $0.8626 after the Reserve Bank of New Zealand (RBNZ) said it would continue to tighten to stay on top of inflationary pressures. As expected, it hiked its cash rate to 3.0 percent from 2.75 percent.
Some in the market had thought it might signal a slowing in the pace of further rate hikes given a stubbornly strong currency and still moderate inflation.
The kiwi though steadied at $0.8611, with analysts saying further gains might be limited.
"We believe further NZD appreciation is likely to be capped within a cent of current rates as the tightening cycle is fairly priced," said Annette Beacher, head of Asia Pacific research at TDSecurities in Singapore.
The kiwi also rose against the yen, euro and its Australian counterpart, which suffered heavy losses on Wednesday in the wake of unexpectedly soft inflation data.
Both Antipodean currencies were among some of the biggest movers this week, in contrast to the G3 currencies which stayed in all-too familiar territory.
The U.S. dollar index .DXY last traded at 79.845 after ending little changed on Wednesday. It had dipped to a near one-week low of 79.698 but recovered almost all of its losses to be nearly flat on the week.
The euro was stuck at $1.3820 after pulling back from a near one-week high of $1.3855, leaving it just a shade firmer on the week.
Traders said the common currency could struggle ahead of a speech by ECB President Mario Draghi, although they conceded that it would be hard for him to sound any more dovish.
His speech comes a day after a survey showed the euro zone private sector started the second quarter on its strongest footing since 2011.
Also, Draghi has already said the bank will ease policy further if the euro keeps strengthening, although he has been vague on the timing.
Against the yen, both the dollar and euro have been confined in slim ranges this week. The greenback was last at 102.48, having drifted either side of 102.50. The euro fetched 141.61 yen and appeared reluctant to stray too far from 141.70.
There is little in the way of major economic news out of Asia on Thursday.
On Friday, inflation data out of Japan will be closely watched. Core consumer prices in Tokyo are expected to have risen by the most in 22 years in April, driven by an increase in the country's sales tax.
(Editing by Richard Pullin)