Kiwi climbs back above 70 USc as Fed minutes raise question over June hike

Investors will be watching today's New Zealand government budget which will likely show stronger Crown books.

The New Zealand dollar rose back above 70 US cents as investors were disappointed by caveats in the minutes to this month's Federal Reserve policy meeting as they raised uncertainty over the timing of US interest rate increases.

The kiwi climbed to 70.43 US cents as at 8am in Wellington from 69.94 cents yesterday. The trade-weighted index advanced to 76.15 from 75.79 yesterday.

Minutes to the Federal Open Market Committee's meeting earlier this month said most members supported a hike in the federal funds rate in June provided the economic data met expectations and showed officials were planning to gradually shrink the central bank's balance sheet after years of expanding it through quantitative easing. While a rate increase is still expected next month, the US dollar index dipped as investors wanted a clearer steer on the timing of the Fed's tightening.

"Markets did a bit of there-and-back on the release of the Fed's minutes; the USD bounced a tad but then retreated with the consensus being that markets were looking for more direct references to a June hike," ANZ Bank New Zealand chief economist Cameron Bagrie said in a note. "The NZD has rallied hard from the 0.6880 support level, but gains above 0.70 look set to be harder fought."

Investors will be watching today's New Zealand government budget which will likely show stronger Crown books with increased spending expected in health, education, infrastructure and housing. Still, ANZ's Bagrie said he thinks the kiwi's overnight rally will fade after the budget.

The kiwi rose to 62.81 euro cents from 62.54 cents yesterday after European Central Bank president Mario Draghi played down side-effects of running negative interest rate policy while noting underlying inflation in the region was still subdued in spite of the recent economic activity.

The local currency rose to 4.8514 Chinese yuan from 4.8196 yuan yesterday after Moody's Investors Service downgraded China's sovereign credit rating one notch over the nation's growing indebtedness and what effects that might have on future economic growth. The kiwi was little changed at 93.91 Australian cents from 93.92 cents.

New Zealand's currency rose to 78.63 yen from 78.22 yen yesterday and climbed to 54.36 British pence from 53.89 pence.