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The New Zealand dollar advanced as investors increased their holdings of the local currency after a sell-off earlier in the week on concern over the impact of a food contamination scare on the New Zealand economy.
The kiwi rose to 79.56 US cents at 8am in Wellington from 78.94 cents yesterday. The trade-weighted index gained to 75 from 74.66.
Some investors sold the New Zealand dollar earlier in the week on the expectation the currency would fall further on concern a food contamination scare at Fonterra, the nation's largest company, would hurt the economy.
The crisis appears to have abated and those investors are buying back the kiwi to rebalance their portfolios.
"The export issue has just completely faded from memory now," says Sam Tuck, senior manager FX at ANZ New Zealand. "We have recovered and now we will follow Australian and US dollar events. We still seem to be on a firm footing."
The kiwi is likely to trade in the 78.60 US cent to 81 cent range for the next little while, he says.
Today in New Zealand, state valuer QV releases a report on property values for July, which will be watched for continued signs of an overheated housing market in Auckland and Christchurch.
The kiwi advanced to 88.51 Australian cents at 8am in Wellington from 88.04 cents yesterday ahead of labour market data today. A report scheduled for release at 1.30pm NZ time is expected to show the Australian unemployment rate rose to 5.8 percent in July from 5.7 percent.
The report may spark volatility in currency trading today. However, the key event for the Australian dollar is tomorrow's Reserve Bank of Australia statement on monetary policy which will signal whether the central bank plans to cut interest rates further following a quarter point cut to 2.5 percent this week, Mr Tuck says.
The Australian dollar may strengthen should tomorrow's release suggest the bank is on the sidelines as investors are expecting further reductions, he says.
The kiwi weakened to 51.36 British pence from 51.50 pence yesterday after Bank of England governor Mark Carney for the first time linked the outlook for monetary policy to unemployment, saying the central bank is unlikely to tighten policy as long as unemployment exceeds 7 percent.
Britain's unemployment rate is 7.8 percent and the bank expects it to stay above 7 percent until at least late 2016, signalling no change of policy until then.
"We lost ground to the sterling because the BoE introduced forward guidance," Mr Tuck says. "The market breathed a sigh of relief that it wasn't anything major, a mere linking to the unemployment rate."
The local currency was little changed at 76.75 yen from 76.80 yen yesterday ahead of a Bank of Japan meeting today where no change to policy is expected.
The yen strengthened against the US dollar as investors who had been selling the currency in anticipation of fiscal reform are now buying it back ahead of the central bank statement as no announcement appears imminent.
"People have been waiting for some sort of fiscal policy reform, labour reforms and corporate tax reforms in Japan. It hasn't eventuated so far so people who were structurally short yen, mainly through US dollar yen, have been slowly closing that position out as that fails to eventuate," Mr Tuck says.
The kiwi rose to 59.67 euro cents from 59.34 cents yesterday even as a report showed German industrial production increased more than expected in June.