The New Zealand dollar recovered some of the ground lost after the US Federal Reserve appeared to take a rate cut off the table - but it is probably headed lower.

The kiwi was trading at 66.31 US cents at 5pm in Wellington from 66.19 at 8am. The trade-weighted index rose to 72.33 points from 72.24.

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"It was a small rebound – most currencies experienced a small rebound," said Imre Speizer, market strategist at Westpac.

But it's still all about interest rate differentials and Powell said the pullback in inflation in the US is only "transitory" and so a rate cut won't be needed.

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The Fed's inflation target is 2 per cent and the core measure it watches came in at 1.6 per cent in the March quarter.

"We suspect transitory factors may be at work," Fed chair Jerome Powell said, adding that inflation should return to the bank's target over time.

But the local market is pricing in a 55 per cent chance the Reserve Bank of New Zealand will cut its official cash rate next week, down from a 60 per cent chance late yesterday.

The New Zealand two-year swap rate rose to 1.6239 per cent from 1.6095 yesterday while the 10-year swap rate climbed to 2.1825 per cent from 2.1650.

"We still think there's a slightly greater than 50 per cent chance that there's a cut in May," Speizer says.

"If that's the case, we will get a further movement in interest rate differentials. Even if the Reserve Bank maintains its easing bias, the kiwi should still fall," he says.

The market has reacted strongly since Reserve Bank governor Adrian Orr said on March 27 that the next move in the OCR is probably down.

The kiwi has dropped from above 69 US cents the day before that statement.

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"At some point soon, you've got to deliver on that easing bias – if you look like you're not going to back it up and will just talk about it, the market will quickly take back that reaction," Speizer says.

The New Zealand dollar was trading at 94.39 Australian cents from 94.37, at 50.79 British pence from 50.73, at 59.16 euro cents from 59.09, at 73.96 Japanese yen from 73.74 and at 4.4651 Chinese yuan from 4.4565.