The New Zealand dollar rose to its highest in more than six weeks by investors seeking yield after Switzerland's central bank dropped its cap on the Swiss franc's value against the euro and moved deposit rates further into negative territory.
The kiwi rose to a record against the euro on speculation the Swiss expect the European Central Bank to launch a bond-buying programme next week.
The kiwi touched 78.90 US cents and was trading at 78.24 cents at 8am in Wellington, from 77.20 cents at 5pm yesterday. The local currency touched 57.81 Swiss franc, its lowest level since August 2011, and was recently trading at 69.38 franc from 78.67 franc yesterday.
The kiwi touched a record 67.45 euro cents and was recently trading at 67.35 cents from 65.52 cents yesterday.
Currency markets were volatile overnight after the Swiss National Bank unexpectedly dropped its policy to maintain the value of the nation's currency against the euro, which had proved costly as the euro declined, and said it will push its sight deposit rate to minus 0.75 percent from minus 0.25 percent. Currency strategists speculated the SNB may cut rates further in an attempt to lower the value of the currency, which increases the yield advantage offered by countries such as New Zealand where interest rates are higher.
"When the Swiss National Bank brought interest rates deeper into negative territory, investors were forced to look for alternative safe havens," Kathy Lien, managing director of FX strategy at BK Asset Management in New York, said in a note. "This resulted in money pouring into Australia and New Zealand, two countries still offering an attractive yield.
"One of the biggest winners today was the New Zealand dollar, which rose more than 1 percent," Lien said.
"Like the Fed, New Zealand is one of the few central banks still talking about raising rates."
Nine of 14 economists in a Reuters poll expect New Zealand Reserve Bank governor Graeme Wheeler to raise the benchmark interest rate by the end of this year following four consecutive hikes last year to 3.5 percent.
Commodity currencies such as the Australian and New Zealand dollars also benefited overnight from a rebound in gold and copper prices, while the Aussie was boosted by better-than-expected employment data which improved the outlook for the economy, BK's Lien said. The commodity currency strength didn't extend to the Canadian dollar as home-sales data fell in December and oil prices weakened, she said.
In New Zealand today, accommodation data for November is scheduled for release.
Tonight, the focus will be on December inflation data from the US and the Eurozone. The US also has consumer confidence and industrial production data.
The local currency advanced to 95.19 Australian cents from 94.24 cents yesterday, gained to 51.50 British pence from 50.67 pence and rose to 91.07 yen from 90.85 yen. The trade-weighted index rose to 79.57 from 78.56 yesterday.