The New Zealand dollar gained on speculation there will be less need to raise interest rates in the US because the Trump administration is too distracted by imbroglios such as the firing of the Federal Bureau of Investigation chief to enact economy-boosting policies and inflation data has been weak.
The kiwi advanced to 69.38 US cents as at 8am in Wellington from 68.96 cents late yesterday. The trade-weighted index increased to 75.21 from 74.86 yesterday.
Stocks dropped with the Standard & Poor's 500 index down 1.7 per cent in late trading, the US dollar index, a broad measure of the greenback, fell 0.6 per cent, and the yield on 10-year US Treasuries fell 10 basis points as investors scaled back their expectations for the Federal Reserve to raise interest rates this year.
The downbeat tone came amid reports alleging Trump may have tried to influence the FBI investigation into his national security adviser Michael Flynn, days after he shared secret Israeli intelligence with Russian officials. The Chicago Board Options Exchange's volatility index, known as Wall Street's 'fear gauge', jumped 45 per cent to 15.43.
"The combination of a potentially weaker inflation environment than previously thought and less chance that Trump's fiscal stimulus will see the light of day has softened the outlook for Fed tightening," Bank of New Zealand currency strategist Jason Wong said in a note.
