The New Zealand dollar climbed from a three-month low as traders recovered lost confidence in the local economy, and lowered their expectations for a downgrade to the Reserve Bank's interest rate track when it reviews monetary policy next week.
The kiwi rose to,84.41 US cents at 5pm in Wellington from 84.15 cents at 8am and 84.13 cents yesterday. The trade-weighted index advanced to 78.90 from78.67 yesterday.
The New Zealand dollar arrested its slide this month as traders pared back expectations Reserve Bank governor Graeme Wheeler will lower his forecast track for interest rate hikes this year at next Thursday's monetary policy review.
Traders started anticipating a slower pace of interest rate increases as dairy prices steadily declined this year, and local inflation stayed in check. Traders are betting Wheeler will hike the official cash rate 80 basis points over the coming 12 months, according to the Overnight Index Swap curve.
"The market is coming to their senses and realised they have overdone how much they think the Reserve Bank will downgrade the interest rate track next week," said Imre Speizer, market strategist at Westpac Banking Corp in Auckland.