The New Zealand dollar has jumped to its highest in more than five months after weaker than expected jobs growth in the US reinforced the likelihood that the Federal Reserve will keep monetary stimulus for longer, devaluing the greenback.
The kiwi touched 85.43 US cents overnight, its highest level since May 6. The local currency was trading at 85.13 US cents at 8am in Wellington from 84.42 cents at the 5pm market close yesterday. The trade-weighted index advanced to 78.17 from 77.85 yesterday.
The US dollar index, which measures the greenback against a basket of currencies, slumped to its lowest in more than eight months after a report showed the US added 148,000 jobs in September, lagging the 180,000 expected by economists. The data preceded the 16-day US government partial shutdown which is expected to have further weakened the world's largest economy, and emboldens expectations that the Fed won't pull back on its stimulus until March next year.
"It is not so much the kiwi advancing as the US dollar weakening and that's on the effect of increased money supply in the US," said Sam Tuck, senior manager FX at ANZ New Zealand. "As the Fed pumps more dollars into the US system, the value of each dollar becomes weaker. The Federal Reserve is going to be increasing the supply of US dollars for a while yet quite dramatically.
"There seems to be little reason to sell the New Zealand dollar with the good New Zealand story and the perception that yield will continue to be bid as the Fed remains on hold well into 2014," Tuck said.
The New Zealand dollar was unchanged at 61.77 euro cents. The euro was the strongest performing currency overnight, showing investors are shunning the US dollar and seeking growth, said ANZ's Tuck.
The kiwi advanced to 87.70 Australian cents, from 87.48 cents yesterday, ahead of a report at 1:30pm New Zealand time today which is expected to show Australian third quarter inflation accelerated 0.8 per cent, taking the annual pace to 1.8 per cent.
The local currency rose to 83.50 yen from 83.02 yen yesterday and increased to 52.43 British pence from 52.36 pence ahead of tonight's release of the Bank of England's minutes from its last meeting.