The New Zealand dollar rose after better-than-expected US manufacturing data reignited investors optimism that the world's largest economy is on track, boosting demand for growth-linked assets such as the kiwi.
The New Zealand dollar rose to 81.56 US cents at 8am in Wellington from 81.47 US cents at 5pm yesterday. The trade weighted index increased to 72.42 from 72.35.
The Institute for Supply Management's index of US manufacturing rose to 54.8 in April, the highest level since June, up from 53.4 a month earlier. Economists in a Bloomberg survey had forecast a decline to 53. The data reduced bets the Fed will take more action to prompt economic growth.
The kiwi "is going to become a growth story again - people will be buying risk currencies on the back of that data," said Stuart Ive, currency strategist at HiFX. "The kiwi does have the potential possibility of looking to crawl back up for the rest of the week as we approach non-farm payrolls on Friday."
The kiwi has gained about 4 per cent against the greenback this year after Fed policy makers said they would hold off increasing monetary accommodation unless US economic expansion falters or prices rise at a slower rate.
In January, it pledged to keep interest rates near zero until at least the end of 2014.
"From the Fed's point of view we have (previously) seen weak data, they will look to see if this is just a blip - that is what everyone is waiting to see," Ive said.
The New Zealand dollar climbed to 78.91 Australian cents from 78.82 cents yesterday at 5pm after the Reserve Bank of Australia slashed half a percentage point from its benchmark interest rate to 3.75 per cent.
Governor Glenn Stevens said in a statement that the bank's board "judged it desirable that financial conditions now be easier" and that a 50 basis point reduction was "necessary in order to deliver the appropriate level of borrowing rates."
Australia is New Zealand's biggest export market and the RBA's move narrows the gap with New Zealand's 2.5 per cent official cash rate.
The kiwi was little changed after prices of dairy products extended their slide in Fonterra Cooperative Group's latest GlobalDairyTrade auction, falling a further 2.4 per cent to their lowest since August 2009. The auction platform reported a 9.9 per cent price drop a fortnight ago.
The decline comes as Fonterra's farm gate pricing faces political scrutiny in New Zealand, where the cooperative's enabling legislation is getting its biggest overhaul since the world's largest dairy exporter was created in 2001.
The ANZ Commodity Price Index is also set for release today, providing further evidence of the direction of prices for New Zealand's export commodities.
The New Zealand dollar rose to 61.58 euro cents from 61.51 cents yesterday and was little changed at 50.23 British pence. The kiwi increased to 65.31 yen from 65.08 yen.