An issue of New Zealand dollar denominated eurokiwi bonds overnight supported the kiwi which had been weakening as investors' aversion to risk increases.
Worries about a possible near-term interest rate hike in China to slow its accelerating economy prompted investors to unwind trades funded by low Japanese interestrates.
Any slowdown in China as a result of higher rates could crimp demand for emerging market and other risky assets, such as the NZ dollar, that have supported the carry trade, a strategy in which investors borrow cheaply to buy higher-yielding assets or currencies.
The ANZ bank said the eurokiwi issuance overnight provided some assistance for the NZ dollar, but markets remained extremely nervous given the currency's current levels.
Today the kiwi should find plenty of local sellers to meet any offshore demand, ANZ said.
From around US74.80c yesterday morning the kiwi was down below US73.70c by the evening, before rebounding towards US74.50c around 2am and trading in a narrow band between then and the local market opening at 8am.
Samarjit Shankar, a director for foreign exchange at Mellon Financial Corp in Boston, said demand for carry trades had fallen, with the yen rebounding against most major currencies.
"It's a knee-jerk reaction to the possibility of higher interest rates in China."
While the NZ dollar did fall against the yen yesterday, from 88.80 to 86.70 during the day, it regained some of the lost ground overnight to be at 88.08 shortly after 8am today.
The NZ dollar was also stronger against the aussie at A89.12c around 8.10am from A88.88c at 5pm. Against the euro it was up to 0.5465 from 0.5445. The trade weighted index was at 71.79 from 71.46.
Data shows that China's economy grew at a blistering 11.1 per cent annual pace in the first quarter and March inflation rose above the central bank's 3 per cent comfort level.
The numbers fuelled speculation that interest rates would need to rise again soon to tighten credit, a view enhanced by Premier Wen Jiabao's comments that the country needed to take measures to prevent economic overheating.
