The New Zealand dollar rose before the Reserve Bank's policy statement as investors weighed the prospects for a gradual reduction in momentary stimulus in the US and the greenback dropped against most major currencies.
The kiwi gained to 79.59 US cents, from 78.76 cents at 5pm yesterday. The trade-weighted index edged up to 74.06 from 73.45 yesterday.
The dollar index, which measures the greenback against six major trading partners, dropped to its lowest in four months as traders ponder the end of the Federal Reserve's quantitative easing. The Fed is expected to start reducing its US$85 billion-a-month asset purchase programme as the world's largest economy shows sustained improvement.
"The US dollar weakened somewhat. There's a bit of concern about when the Federal Reserve is going to start their bond buying tapering," said Michael Johnston, a senior trader at HiFX. "The US dollar has strengthened quite substantially in recent times and I don't necessarily think the end is over."
A report in the US on Friday is expected to show retail sales grew 0.4 per cent in May from 0.1 per cent, according to a Reuters survey.
In New Zealand, all eyes are on Reserve Bank Governor Graeme Wheeler who is expected at 9am to keep the official cash rate at a record low 2.5 per cent. Traders will be looking to see whether he's changed his forecast track for the 90-day bank bill rate, seen as a proxy for the cash rate.
Traders yesterday increased their expectations for interest rate hikes. They have priced in 36 basis points of increases in the coming year, up from 22 basis points at the start of this week, according to the Overnight Index Swap curve.
The New Zealand dollar gained to 84.04 Australian cents, from 83.49 cents yesterday ahead of a report today on Australian employment.
The local currency jumped to 76.50 yen from 75.99 yen, rose to 59.72 euro cents from 59.18 cents and edged up 50.79 British pence from 50.39 pence.