The New Zealand dollar fell in Asia after upbeat comments overnight from Federal Reserve chair Jerome Powell reinforced the view US rates will keep rising while domestic rates stay at a record low.
The kiwi traded at 67.70 US cents as at 5pm in Wellington from 67.82 cents at 8am and 68.30 cents yesterday. The trade-weighted index was at 72.76 from 73.07.
The New Zealand dollar jumped to a week-high yesterday after an inflation gauge published by the Reserve Bank accelerated at its fastest pace in seven years, prompting investors to pull back expectations the central bank could cut rates.
However, it unwound all of those gains after Powell said "with a strong job market, inflation close to our objective, and the risks to the outlook roughly balanced, the FOMC believes that - for now - the best way forward is to keep gradually raising the federal funds rate".
Imre Speizer, head of NZ strategy at Westpac Banking Corp, said he expects the kiwi will remain weighed down as the NZ-US interest rate advantage has been eroded.
"It's generally been a stronger US dollar theme and it (the kiwi) has unwound the CPI spike," said ANZ Bank New Zealand senior macro strategist Phil Borkin.
With little data on the immediate horizon, Borkin said the kiwi will follow offshore cues and noted New Zealand dollar positioning remains extremely short, with traders still betting on the currency to decline, and any change could see it squeeze higher.
Short positions are "fine when the data flow remains weak as you will see the kiwi continue to underperform in that environment but as soon as you start getting positive surprises relative to expectations then the market is vulnerable to unwind that position," he said.
The kiwi traded at 91.73 Australian cents from 91.84 cents yesterday and fell to 4.5389 Chinese yuan from 4.5600 yuan. It was little changed at 76.51 yen from 76.67 yen yesterday and rose to 51.65 British pence from 51.55 pence. The kiwi traded at 58.13 euro cents from 58.28 cents yesterday.
New Zealand's two-year swap rate fell 3 basis points to 2.13 per cent and 10-year swaps declined 4 basis points to 3.02 per cent.