Chinese officials confirmed 440 cases of coronavirus and nine deaths and there have also been reports of cases in Japan, Thailand, Taiwan, South Korea and Macau. A single case has also been reported in the US of a man who had recently visited the city of Wuhan, believed to be where the virus originated.
China's coming Lunar New Year celebrations - when millions of Chinese travel - has heightened fears that the virus will spread further.
"There's potential for it to get worse before it gets better," said Tim Kelleher, head of foreign exchange sales at Commonwealth Bank of Australia.
The market is also awaiting key data later this week with Australian jobs data for December due tomorrow and likely to be a key determinant of whether the Reserve Bank of Australia cuts its cash rate at its next meeting on February 4.
New Zealand's inflation data is also due on Friday. Although it is expected to show the annual inflation rate nudging up to about 1.8 per cent, not too far off the Reserve Bank of New Zealand's 2 per cent target, nobody is expecting any move in the central bank's official cash rate next month.
Hamish Pepper, fixed interest and currency strategist at Harbour Asset Management, said taking a step back from immediate market influences, such as the coronavirus, "the set-up for the New Zealand dollar is still quite a positive one."
Key risks globally, including the US-China trade war and Brexit, have abated and market volatility has greatly reduced, Pepper said.
The kiwi has risen from just above 62 US cents in early October and it has also gained against the Australian dollar from just above 92 Australian cents.
At 5pm today, the New Zealand dollar was trading at 96.30 Australian cents from 96.23 cents yesterday, at 50.54 British pence from 50.77, at 59.46 euro cents from 59.53, at 72.49 yen from 72.64 and at 4.5470 Chinese yuan from 4.5533.
The two-year swap rate eased to a bid price of 1.1969 per cent from 1.2088 yesterday, while 10-year swaps fell to 1.6225 per cent from 1.6575.
