The New Zealand dollar weakened against its US counterpart amid speculation growth in the world's largest economy may spur the Federal Reserve to reduce stimulus, known as quantitative easing.
The kiwi fell to 81.56 US cents from 81.82 cents at 5pm yesterday. The trade-weighted index was little changed at 77.15 from 77.10 yesterday.
Investors are looking to Federal Reserve Chairman Ben Bernanke's testimony in front of a House of Representatives committee on Wednesday (Thursday NZ) in Washington where he is expected to talk about the future of the quantitative easing programme. He may be more cautious about tapering off the programme than other Fed officials, damping suggestions the Fed would start rolling back the easing programme this year.
"He will probably stay the QE course," said Mike Jones, a currency strategist at Bank of New Zealand. "He will reiterate the fact that QE is unlikely to end any time soon and could be adjusted up or down. It could temper enthusiasm for the US dollar."
The New Zealand dollar is likely today to stay within its overnight range of 81.20 US cents to 82 US cents, Jones said.
Bernanke will give his testimony about 2am New Zealand time tomorrow, with the minutes from the Fed's last meeting expected about 6am local time.
Investors had been betting the Fed would pull back its US$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.
Still, some Federal Reserve officials yesterday cast doubt on the idea the central bank is close to tapering asset purchases, Jones said.
Federal Bank of St. Louis president James Bullard said the Fed should continue the quantitative-easing programme while adjusting the rate of purchases in view of incoming data. Federal Bank of New York president and vice-chairman of the Federal Open Market Committee said because the outlook was uncertain, he hadn't decided whether the next policy move should be an increase or a decrease in bond buying.
Meanwhile, little change is expected from a Bank of Japan meeting this afternoon, Jones said.
The New Zealand dollar fell to 83.20 Australian cents from 83.40 cents at 5pm yesterday. It dropped to 83.59 yen from 83.82 yen, and slid to 63.19 Euro cents from 63.46 cents. The local currency advanced to 53.81 British pence from 53.66 yesterday.