The New Zealand dollar gained as investors eye tomorrow's Reserve Bank policy review which is expected to see governor Graeme Wheeler cut interest rates and indicate more to come.
The kiwi rose to 71.55 US cents at 8am in Wellington from 71.29 cents yesterday. The trade-weighted index advanced to 75.97 from 75.82.
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The Reserve Bank has indicated it will have to lower the official cash rate from its current 2.25 percent level in a bid to deter investors from buying the kiwi, which has stayed higher than the central bank was expecting and pushed down inflation by making imports cheaper.
Traders have priced a cut as a foregone conclusion, with 73 percent predicting Wheeler will lower the OCR by 25 basis points, and 27 percent picking he'll go even further by slicing by 50 points.
"The risks around this meeting are therefore likely tilted toward the RBNZ not sounding sufficiently dovish relative to these expectations," Bank of New Zealand senior market strategist Kymberly Martin said in note. "The NZD/USD could gain a knee-jerk skip higher."
Wheeler has had to contend with a hot property market where supply has struggled to match demand, while globally low interest rates have made New Zealand a stand-out for investors seeking real returns with its relatively high interest rate. Better-than-expected US employment data last week stoked expectations the Federal Reserve will raise interest rates later this year, which BNZ's Martin said has been the primary driver for the kiwi dollar.
"We would be surprised if its actions have any enduring impact on the NZD," Martin said. "Relative economic fundamentals, global risk appetite and evolving expectations for the US Fed will likely remain dominant drivers."
The local currency was little changed at 93.30 Australian cents from 93.37 cents yesterday ahead of a speech by Reserve Bank of Australia governor Glenn Stevens.
Traders will be watching Stevens for any indication the RBA plans to cut rates further.
The kiwi traded at 72.94 yen from 72.97 yen yesterday and gained to 4.7622 Chinese yuan from 4.7473 yuan. It rose to 55.02 British pence from 54.83 pence and was little changed at 64.41 euro cents from 64.35 cents