The New Zealand dollar rose after the Reserve Bank's survey of expectations showed firms are predicting inflationary pressures, and ahead of US inflation which may offer a steer on the Federal Reserve's interest rate track.
The kiwi gained to 73.31 US cents as at 5pm in Wellington from 72.77 cents as at 8am and 72.62 cents late yesterday. The trade-weighted index increased to 75.10 from 74.62.
The RBNZ's March quarter survey showed firms lifted their two-year inflation expectations to 2.11 per cent from 2.02 per cent in the prior period, while one-year inflation expectations remained steady at 1.86 per cent.
The central bank has signalled it will keep the official cash rate at a record low 1.75 per cent until the latter half of next year at the earliest but does keep a close eye on the expectations as they have an impact on wage and pricing setting behaviour.
"The dollar got quite a bounce from the inflation expectations," Westpac Banking Corp head of NZ strategy Imre Speizer said.
It is a "bit of a puzzle" as to why the two-year inflation expectations lifted while the one-year outlook was steady, but Speizer said firms may be factoring in new government initiatives and a revised policy targets agreement, both of which will take some time to have an impact.
The survey also showed early signs of wage inflation and Speizer said that may have added to the kiwi's bounce. Annual hourly wage growth for one year ahead is seen at 2.48 per cent versus 2.25 per cent in the prior survey and increases to 2.68 per cent in two years from 2.57 per cent.
Investors are now waiting for US inflation data for January. Headline consumer price inflation is forecast to slow to an annual 1.9 per cent and core inflation to 1.7 per cent. If inflation is higher the greenback should get a solid lift as it will solidify expectations the Federal Reserve will be lifting rates in March.
The kiwi gained to 92.93 Australian cents from 92.29 cents yesterday and increased to 52.66 British pence from 52.46 British pence. It traded at 59.16 euro cents from 59.06 cents, and rose to 4.6425 yuan from 4.5810 yuan but fell to 78.34 yen from 78.82 yen as Japan's currency gained traction against the greenback.
New Zealand's two-year swap rate fell 1 basis point to 2.14 per cent, while 10-year swaps fell 5 points to 3.25 per cent.