The New Zealand dollar touched its highest in almost three years overnight and the trade-weighted index reached a new record as investors shunned the greenback in favour of currencies with higher yield.
The kiwi hit 87.79 US cents overnight, the highest level since its post-float high in August 2011 of 88.40 cents. The local currency was trading at 87.47 cents at 8am in Wellington, from 86.91 cents at 5pm yesterday. The trade weighted index touched a record 81.21 overnight, and was trading at 80.95 at 8am from 80.72 yesterday.
The US dollar index, which measures the greenback against a basket of currencies, fell to its lowest since October last year as investors pared back their expectations for growth in the world's largest economy. Currencies offering the highest yields, such as the New Zealand dollar, benefited.
"There was broad-based US dollar weakness," said Peter Cavanaugh, client adviser at Bancorp Treasury Services. "Currencies offering good yield were in strongest demand, like the kiwi. The euphoria around US data has evaporated as looking through it, it was no more than a rebound from their atrocious winter weather and the rebound is thoroughly unconvincing."
Today, traders will be eyeing a speech by Reserve Bank governor Graeme Wheeler to the DairyNZ Farmers' Forum in Hamilton on the significance of dairy to the New Zealand economy.