The New Zealand dollar gained after investors bet the greenback had advanced too far, too fast following upbeat US employment numbers last week.
The kiwi increased to 78.01 US cents from 77.26 cents at the 5pm market close in Wellington yesterday. The trade-weighted index advanced to 74.68 from 74.21 yesterday.
The US dollar index, which measures the greenback against the currencies of six major trading partners, retreated overnight after surging to a three-year high following better than expected jobs numbers on Friday. US Treasuries rose for the first time in three days on speculation an increase in 10-year yields to the highest in almost two years had been too rapid.
"It is not a New Zealand dollar story. It's still a US dollar story," said Peter Cavanaugh, client advisor at Bancorp Treasury. "The job numbers gave everybody a bit of a sugar rush. Looking at what happened with the US dollar and US Treasuries last night there seems to be an acceptance that maybe they went too far in reaction last week so it is time for a little bit of consolidation."
Today, traders will be eyeing the New Zealand Institute of Economic Research's Quarterly Survey of Business Opinion due for release at 10am for indications of how business sentiment was tracking in the second quarter.
Sentiment is expected to be buoyant as the economy benefits from the rebuilding of earthquake damaged Christchurch and solid growth in the dairy industry, said Bancorp's Cavanaugh.
The Statistics New Zealand department releases electronic card transactions for June at 10:45am, providing an insight into consumer spending. The index has had only one monthly decline the past eight months.
State valuer Quotable Value today releases its latest report on house values for June, following annual growth of 7.1 per cent in May. Real Estate Institute figures yesterday showed the median sales price rose 0.5 per cent in June.
In Australia, traders will be watching for a report on business confidence for signs of weakness. The New Zealand dollar advanced to 85.48 Australian cents from 85.39 cents yesterday.
Reports on Chinese inflation and producer prices today will also be watched closely for signs of a slowdown in Asia's largest economy. China is New Zealand's second-largest trading partner and Australia's largest trading partner.
In a sign of the tough times ahead for firms, producer prices are forecast to drop for the 16th consecutive month, falling 2.7 per cent in June, compared with May's 2.9 per cent drop. Meanwhile, consumer inflation is expected to quicken to 2.5 per cent in June, well below the central bank's 3.5 per cent target for 2013, according to Reuters polls.
The local currency rose to 78.78 yen from 78.22 yen at 5pm in Wellington yesterday. The kiwi increased to 60.58 euro cents from 60.29 cents and gained to 52.17 British pence from 51.94 pence.