The dollar held broadly steady on Monday as markets awaited this week's U.S. data for clues how fast interest rates need to rise to counter inflation, while it hit a 22-year low against the high-yielding New Zealand dollar. In trading thinned by a holiday in the United States, major currencies stuck to a tight range with focus on U.S. inflation and growth data due later in the week.
Instead investors drove up the kiwi dollar -- which has the highest interest rates in developed economies of 6.5 percent -- to its highest level since 1983 as they refocused on carry trades to get instant returns in a sideways market.
"At the moment the market perceives not much event risk. The euro/dollar and dollar/yen are going sideways and volatility is falling. This is making carry trades more attractive," said Bilal Hafeez, currency strategist at Deutsche Bank.
"We've also had good data from New Zealand recently which is leading to greater expectations of higher interest rates there."
At 5:30 a.m. EST the dollar traded steady on the day at $1.3061 per euro (EUR=), 105.56 yen (JPY=) and 1.1832 Swiss francs (CHF=).
This meant the dollar was about six cents up from record lows versus the euro set in December and three cents below a three-month high set in February.
The euro held near last week's 1-1/2 month high versus the yen (EURJPY=) as the Japanese currency continued to suffer from deteriorating sentiment toward Japan's economy after data showed it was in a recession for the best part of 2004.
The New Zealand dollar hit its highest level since early 1983 at US$0.7279 (NZD=). It was also at its highest level in seven years against the yen, at 76.82 yen (NZDJPY=R).
"We've seen yields coming back in vogue in the environment of euro/dollar and dollar/yen struggling to find key trends," said Daragh Maher, currency strategist at Calyon in London.
"One of the concerns in New Zealand is that wage inflation might be a catalyst for a further rate increase."