The New Zealand dollar jumped 1.3 per cent against the greenback after U.S. unemployment unexpectedly grew to 9.8 per cent last month, stoking fears the world's biggest economy may need more stimulus to revive its sagging recovery.
U.S. non-farm payrolls grew 39,000 last month, almost a quarter of the145,000 more jobs expected, and the jobless rate rose to a seven-month high.
That eroded upbeat sentiment about the state of America's recovery, sending stocks on Wall Street lower and lifting yields on U.S.
government bonds.
Markets pared their losses after Federal Reserve Chairman Ben Bernanke left open the possibility of expanding the latest US$600 billion money-printing exercise to prop up the economy.
"Unemployment went up and job gains were weaker by about a third of what was expected - attention drifted from Europe and back to the U.S.," said Mike Jones, strategist at Bank of New Zealand.
"The collapse in the greenback sent a rocket under the kiwi dollar on Friday," which has surged beyond its fair value range, he said.
The kiwi climbed to 76.62 US cents from 75.64 cents on Friday in New York, and gained to 68.83 on the trade-weighted index of major trading partners' currencies from 68.56.
It rose to 63.32 yen from 63.18 yen last week, and slipped to
77.28 Australian cents from 77.34 cents.
It decreased to 57.11 euro cents from 57.20 cents on Friday, and increased to 48.58 pence from 48.43 pence.
Speculation the European Central Bank continued to buy Portuguese and Irish government bonds helped quell fears over the European sovereign debt crisis, and underpinned the improvement in investors'
appetite for riskier, higher-yielding assets.
ECB President Jean-Claude Trichet said all countries in the region have to work to "make next year's fiscal objectives credible."
Risk appetite was also bolstered by a gain in commodity prices, with the Thomson Reuters/Jefferies CRB index, a broad measure of 19 raw materials, up 1.3 per cent.
That was led by rising oil prices, with Brent Crude oil up 1.7 per cent to US$91.39 a barrel, the highest level in more than two years.
The government's accounts for the four months ended October 31 come out today, but aren't expected to hold much sway for the currency.
