The New Zealand dollar fell against the greenback as cooling panic over tensions between the US and North Korea reinvigorated risk appetite, prompting a recovery in stocks on Wall Street.
The kiwi declined to 72.86 US cents as at 8am in Wellington from 73.07 cents yesterday. The trade-weighted index slipped to 76.86 from 76.93 yesterday.
Wall Street's 'fear gauge' - the Chicago Board Options Exchange's volatility index - fell 20 per cent to 12.38 as the White House moved to quell fears nuclear war with North Korea was imminent.
Escalating rhetoric from the White House spooked investors over the weekend, prompting a run on safe-haven assets such as the yen, however that reversed as the US administration moved on Sunday to quell the panic. US dollar index, a measure of the greenback against a basket of currencies, gained 0.4 per cent and the Standard & Poor's 500 index was up 1 per cent.
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"By all means, markets are right to be paring back on some of the panic after the White House took steps on Sunday to reassure us that nuclear war is not imminent," ANZ Bank New Zealand senior rates strategist David Croy said in a note.
"But at the same time, having ratcheted up the rhetoric this far, it is hard to see either side backing down significantly and we doubt we've seen the last of this 'issue'."
No local data is scheduled for today and investors will keep tabs on the upcoming GlobalDairy Trade auction tonight, which is expected to show a rise in dairy prices.
Croy said geopolitics will stay a key theme for investors, but wasn't convinced the kiwi dollar should be in a downtrend given the greenback's woes.
"New Zealand's story is pretty good, and we expect tomorrow's GDT (GlobalDairyTrade) auction to underscore that, with prices up about 3 per cent," Croy said. "The theme of rate convergence is back in vogue amid the low inflation backdrop, and if that has any legs, NZ term interest rates need to fall, and for that to happen, buyers need to engaged, which should keep NZD bid."
The kiwi rose to 92.77 Australian cents from 92.53 cents yesterday ahead of an Australian consumer confidence survey, and slipped to 4.8601 Chinese yuan from 4.8682 yuan after data yesterday showed the world's second-biggest economy reported slowing industrial production and retail sales in July.
The local currency was almost unchanged at 61.80 euro cents from 61.81 cents and traded at 56.18 British pence from 56.15 pence. It slipped to 79.90 yen from 80.03 yen yesterday.