The New Zealand dollar fell against a broadly stronger greenback and may extend its decline if US President Donald Trump talks up the US dollar in his first State of the Union address.
The kiwi dropped to 73.15 US cents as at 5pm in Wellington from 73.33 cents late yesterday. The trade-weighted index decreased to 74.56 from 74.60.
The yield on 10-year US Treasuries rose to about 2.71 per cent, the highest since April 2014 overnight, while the US dollar index gained from its lowest level since December 2014 in a week that brings Trump's Union address, Federal Reserve chair Janet Yellen's last policy meeting, nonfarm payrolls and measures of US consumer confidence, house prices, and ISM manufacturing.
"The US dollar looks ready for a bounce," said Martin Rudings, a senior dealer at OMF.
"With a little US dollar surge following US data and the Trump speech, the kiwi will easily be able to move lower."
Trump managed to arrest the slide in the greenback with comments last week "and there's a risk he continues on with that rhetoric."
Closer to home, traders will be watching the release tomorrow of Australia's CPI report for the fourth quarter.
Economists expect a quarterly inflation rate of 0.7 per cent for a 2 per cent increase from a year earlier. Stronger inflation may see the kiwi fall against the Aussie dollar, Rudings said.
The kiwi fell last week after unexpectedly weak New Zealand inflation.
Longer term, the interest rate differential between the US and New Zealand is likely to be a key driver of the kiwi. If the Fed hikes through this year and the differential becomes clearly in the greenback's favour, "the US dollar will be racing. It might even be the new carry trade," Rudings said.
Trump's speech to the Congress, titled "Building a safe, strong and proud America" is due out tomorrow morning New Zealand time. He is expected to set out his priorities for jobs, infrastructure, immigration, trade and national security.
Trump has yet to detail his US$1.7 trillion ($2.3t) election pledge to invest in US infrastructure projects but that type of spending would likely have a more direct impact on US economic growth than his tax reform package and help underpin a US dollar index hovering near a four-year low.
The Federal Open Market Committee will conclude its two-day meeting on Wednesday, the last one with Yellen as chair before Jerome Powell takes over.
While the FOMC is not expected to announce a rate hike on Wednesday, it is widely expected to raise its target rate during its March meeting.
Meantime, US nonfarm payrolls probably grew by 180,000 jobs in the latest month while the unemployment rate fell to 4 per cent, economists forecast.
The local currency traded at 90.54 Australian cents from 90.62 cents yesterday. It declined to 4.6331 yuan from 4.6360 yuan, traded little changed at 59.12 euro cents and rose to 52.07 British pence from 51.86 pence. It traded little changed at 79.78 yen.
New Zealand's two-year swap rate fell 1 basis point to 2.16 per cent while 10-year swaps rose 1 basis point to 3.25 per cent.