The New Zealand dollar hit its highest level this year as investors continued to shed the US dollar after the Federal Reserve pulled back its expectation for interest rate hikes, while stronger-than-expected local growth data made the kiwi more attractive.

The local currency touched 68.68 US cents, and was trading at 68.57 cents at 8am in Wellington, from 67.70 cents at 5pm yesterday. The trade-weighted index increased to 72.46 from 71.98 yesterday.

The US dollar index, which measures the greenback against a basket of currencies, touched its lowest level in almost five months as investors reassess their outlook for the currency following the Fed's move this week to keep interest rates on hold and signal the outlook for just two interest rate hikes this year, fewer than the four previously mooted.

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On the flip side, the kiwi dollar is more in favour after fourth-quarter gross domestic product data yesterday printed stronger than expected.


"All major currencies are higher against the dollar, led by the New Zealand dollar," Bank of New Zealand currency strategist Jason Wong said in a note. "The New Zealand dollar got an extra kicker following slightly stronger Q4 GDP figures."

Wong said the kiwi is closing in on the strong resistance level of just below 69 US cents, the level threatened back in October and December last year.

"The wash-out from the surprise Fed move is likely to continue over coming days as currency projections with respect to the big dollar are reassessed, " he said. "This will span across all asset markets. If the Fed has really gone soft on inflation, then a lower-for-longer rate environment is USD-negative, and positive for risky assets - this includes commodities, emerging markets and the NZD."

In New Zealand today, the ANZ-Roy Morgan consumer confidence survey is scheduled for release at 1pm.

The New Zealand dollar advanced to 89.60 Australian cents from 88.96 cents yesterday, gained to 60.57 euro cents from 60.32 cents, edged up to 76.42 yen from 76.14 yen, and increased to 4.4396 yuan from 4.3991 yuan. It slipped to 47.35 British pence from 47.48 pence yesterday after the Bank of England kept interest rates unchanged and dampened speculation that its next move is likely to be a cut.