The New Zealand dollar breached US81c in early evening trading in an ongoing rally in reaction to a report that China's state-owned wealth fund, the China Investment Corp, may have set aside $NZ6 billion to invest in New Zealand assets.
The report by interest.co.nz caught the market at a time when traders holding short, or sold, positions were nervous.
"The market was short and caught," Mike Hollows, director of trading at HiFX said.
The NZ dollar was at 70.38 on its trade weighted index in early evening trading, which is a three-year high. This was up from 70.17 at 5pm and 69.21 at the same time yesterday.
It rose to US81c shortly before 6pm from US80.69c at 5pm and US79.20c at 5pm yesterday. The currency was last at these levels at the start of the month. It is starting to threaten its post-float high of US82.14c.
Against the Australian dollar, it rose to A76.17c at 5pm from A75.82c at 8am and A75.56c at 5pm yesterday. This is the highest level against the Australian dollar since February.
"A lot of stop loss orders were triggered today. The talk regarding the Chinese and potential investment from them triggered it," Mr Hollows said.
While the issue of Chinese investment in New Zealand had been bubbling along for some time, the timing of the report set off a market reaction.
The euro has been weak and the Australian dollar was weaker today.
BNZ currency strategist Mike Jones said the NZ dollar had also been propelled higher against the aussie after Australian commentator Terry McCrann said overnight Europe's debt crisis would adversely affect Australia.
Until now the weak kiwi against the Australian dollar had held back the NZ dollar's trade weighted index to some extent.
But with the kiwi now having climbed around 2.9 percent against the Australian dollar in May to date, the TWI was closing in on 70 for the first time since June 2008, Mr Jones said.
The soaring TWI had more than offset the Reserve Bank's attempt to ease financial conditions with its 50 basis point rate cut after the Christchurch earthquake in February.
ANZ bank said the catalyst for the rally in the NZ dollar against the greenback had been weak US durable goods orders and stronger commodity prices.
The Greek debt crisis had continued to dominate global price action overnight, yet the euro managed to survive the $US1.40 level after coming under some selling pressure.
Greg Salvaggio, vice president of trading at Tempus Consulting, said Europe was at the beginning of a prolonged sovereign debt crisis that would play out this northern summer.
"Polls suggest 80 percent of Greeks oppose more austerity, so if the government forces the issue, it will fall," which could increase the risk of a debt default.
The NZ dollar rose to 0.5698 at 5pm from 0.5639 yesterday, and was up to 65.92 yen from 64.87.