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The New Zealand dollar touched its highest in almost three years overnight and the trade-weighted index reached a new record as investors shunned the greenback in favour of currencies with higher yield.
The kiwi hit 87.79 US cents overnight, the highest level since its post-float high in August 2011 of 88.40 cents. The local currency was trading at 87.47 cents at 8am in Wellington, from 86.91 cents at 5pm yesterday. The trade weighted index touched a record 81.21 overnight, and was trading at 80.95 at 8am from 80.72 yesterday.
The US dollar index, which measures the greenback against a basket of currencies, fell to its lowest since October last year as investors pared back their expectations for growth in the world's largest economy. Currencies offering the highest yields, such as the New Zealand dollar, benefited.
"There was broad-based US dollar weakness," said Peter Cavanaugh, client adviser at Bancorp Treasury Services. "Currencies offering good yield were in strongest demand, like the kiwi. The euphoria around US data has evaporated as looking through it, it was no more than a rebound from their atrocious winter weather and the rebound is thoroughly unconvincing."
Today, traders will be eyeing a speech by Reserve Bank governor Graeme Wheeler to the DairyNZ Farmers' Forum in Hamilton on the significance of dairy to the New Zealand economy.
The New Zealand dollar didn't react to a 1.1 percent fall in the latest dairy product prices in the GlobalDairyTrade auction this morning. The sixth straight decline adds to expectations Fonterra Cooperative Group will trim its forecast for a record milk payout.
The kiwi is unlikely to react should employment data at 10:45am today show New Zealand unemployment fell to a five-year low as the improvement is already priced in, however a disappointing number could cause the currency to fall, Cavanaugh said.
"At these levels, the kiwi is increasingly exposed to a downside shock," Cavanaugh said.
The New Zealand dollar touched a four-week high of 63 euro cents overnight, and was trading at 62.80 cents at 8am from 62.59 cents yesterday. The local currency touched a three-week high of 51.69 British pence, and was trading at 51.52 pence at 8am from 51.45 pence yesterday.
The kiwi touched a five-week high of 89.28 yen, and was trading at 88.90 yen at 8am from 88.67 yen yesterday.
Meantime, the New Zealand dollar edged lower to 93.50 Australian cents from 93.63 cents yesterday after the Australian Reserve Bank yesterday kept its benchmark interest rate unchanged and didn't try to talk down the value of the nation's currency.
Today, traders will be eying data on Australia's March retail sales scheduled for release at 1:30pm New Zealand time. Also of interest, China's HSBC Services PMI is due out at 1:45pm New Zealand time.
Tonight, traders will be eyeing Federal Reserve chair Janet Yellen's testimony to the Joint Economic Committee at Congress for insights into her thinking about the strength of recent US data.