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The kiwi dollar pushed to a fresh 26-month high against the greenback as the US dollar remained out of favor in Asian trading.
The kiwi traded at 75.45 US cents at 5pm from 75.12 US cents at 8am and 73.38 cents late yesterday. It touched 75.58 the highest since May 2015 when it traded at 75.64. The trade-weighted index climbed to 79.21 from 78.53 yesterday.
The US dollar remained under pressure after the US Federal Reserve's Open Market Committee statement said both overall inflation and the measure excluding food and energy prices have declined and are running below 2 per cent but removed the word "recently," suggesting it may no longer view the decline as temporary.
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It did say, however, it "expects to begin implementing its balance sheet normalization program relatively soon" and because of that investors "may be getting ahead of themselves with the USD sell-off, said Sheldon Slabbert, a trader at CMC Markets. "I think the markets are potentially underestimating the impact of lower liquidity," he said. "That will have a far greater impact going forward than one or two rate hikes."
Slabbert also noted the Trump administration's protectionist policies are almost isolating the US to a certain degree and other countries - like Europe and China - are moving forward with trade agreements without the US, potentially creating a need for less US dollar reserves, which could weigh on the greenback long term. He pointed to China, which has been selling down its US dollar reserves and is now no longer the world's top holder.
"The more protectionist policy has a consequence, which is not necessarily US dollar supportive," he said.
Domestically the kiwi was also supported by Fonterra Cooperative Group lifting its forecast farmgate payout for the 2018 season to $6.75 per kilogram of milk solids, from an earlier projection of $6.50/kgMS and up from $6.15/kgMS in the 2016/17 season.
"Commodities are getting a lift, from the weaker USD dollar," said Slabbert. He said the kiwi may have further room to go although it is looking a bit overstretched but levels around 76.00 "are not out of the question."
The kiwi traded at 93.70 Australian cents from 93.95 cents yesterday, as the Aussie also benefited from US dollar weakness. The kiwi gained to 64.22 euro cents from 63.74 euro cents and rose to 83.77 yen from 83.03 yen. It rose to 57.40 British pence from 57.01 pence and gained to 5.0759 yuan from 5.0124 yuan.
New Zealand's two-year swap rate fell 1 basis point to 2.20 per cent while the 10-year swaps fell 5 basis points to 3.27 per cent.