The New Zealand dollar rose as the greenback weakened on trader bets that Federal Reserve Chairman Ben Bernanke on Wednesday may say he is still cautious about the pace of recovery in the world's largest economy.
The kiwi rose to 81.72 US cents from 81.20 cents at the 5pm market close yesterday. The trade-weighted index gained to 76.98 from 76.65 yesterday.
The Dollar Index, a measure of the greenback against a basket of currencies, pulled back after climbing to near a three-year high on Friday as investor confidence about the US economic recovery ebbed. Bernanke's testimony in front of a House of Representatives committee on Wednesday may be more cautious than some other central bank officials who support unwinding quantitative easing.
"The market is a little bit concerned that maybe he is going to remain cautious," said Sam Tuck, senior manager FX at ANZ New Zealand. "He's renowned for being one of the more cautious members."
Tuck expects the local currency to trade in a range of 81.20 US cents to 82.20 cents today.
"Markets are still definitely focused on the outlook for the US dollar," Tuck said.
Investors had been betting the Fed would pull back its $85 billion a month asset purchase programme after improving data out of the US. A report on Friday showed Americans' confidence in the economy climbed in May to the highest level in almost six years as rising real estate values and record stock prices boosted household wealth. That added to recent positive jobs and retail reports.
Dampening expectations for an end to quantitative easing, the Wall Street Journal's chief economics correspondent Jon Hilsenrath, considered close to the Federal Reserve, said late Friday that the central bank had considered it had ended its previous rounds of quantitative easing abruptly and prematurely.
Chicago Federal Reserve Bank president Charles Evans said yesterday the US economy had improved "quite a lot". Still, he said he wanted to see positive data for six months before judging there was a sustainable improvement.
Weighing on growth sentiment, Taiwan export orders fell in April for the third straight month, down 1.1 per cent from the year earlier. That raises concern about growth in Asia and whether global growth may be slowing, Tuck said.
Traders are looking ahead today to the release of the Reserve Bank's survey of expectations for a take on perceptions of the pace of inflation, while in Australia, the central bank is due to release minutes of its last meeting, where it decided to cut its cash rate a quarter point.
The kiwi rose to 83.15 Australian cents from 83.01 cents yesterday and advanced to 83.60 yen from 83.39 yen. It gained to 63.39 euro cents from 63.21 cents and strengthened to 53.55 British pence from 53.11 pence.