The New Zealand dollar gained ahead of US Federal Reserve chairman Ben Benanke's congressional testimony as speculative investors pare back their bets on the greenback, and was bolstered by Reserve Bank of Australia minutes talking down that nation's inflation outlook.
A strong gain in local dairy prices rounded out a bullish start for the currency.
The kiwi rose to 78.97 US cents at 8am in Wellington from 78.28 cents yesterday. The trade-weighted index was little changed at 74.39 from 74.35 yesterday.
The Dollar Index, a measure of the greenback against a basket of currencies, fell to a three-and-a-half week low ahead of Bernanke's semi-annual testimony to the House of Representatives on July 17 and 18 in Washington. Traders are waiting to see whether he will give any more direction on winding down the Fed's asset purchase programme later this year.
The kiwi and Australian dollars got a boost from yesterday's release of the minutes to the RBA's July meeting, which showed a lower inflation outlook due to the recent depreciation in the currency. That prompted some investors to cut back their bets on a rate cut.
A 4.9 per cent lift in the trade-weighted price of dairy products sold on Fonterra's GlobalDairyTrade auction helped the kiwi. Dairy accounts for about a quarter of New Zealand's exports.
"Economic fundamentals and data took a back seat as people wait for Bernanke", and the over-riding drive in markets overnight was the culling of long positions in the US dollar, said Mike Jones, currency strategist at Bank of New Zealand in Wellington. The RBA minutes and dairy prices were "key supports" for the trans-Tasman currencies, he said.
Jones said the kiwi dollar may trade between 78.60 US cents and 79.10 cents today, with importers likely to keep a lid on the currency as they lock in a higher rate.
Government data yesterday showed New Zealand's consumers price index rose at an annual pace of 0.7 per cent in the June quarter, its slowest pace for inflation since 1999 as the strong kiwi dollar took the edge off imported prices and offset gains in construction costs and rising electricity prices.
The local currency traded at 85.26 Australian cents at 8am in Wellington from 85.39 cents yesterday, and edged up to 78.18 yen from 78.09 yen. It was little changed at 59.97 euro cents from 59.87 cents yesterday, and rose to 52.02 British pence from 51.82 pence.