NZ dollar recovers as Fed's remains upbeat, US trade in view

The kiwi increased to 67.94 US cents as at 8am in Wellington. Photo: Lynn Grieveson

The New Zealand dollar gained as Federal Reserve Jerome Powell continued to deliver an upbeat assessment of the world's biggest economy in his second day of testimony, while US trade relations were also in view.

The kiwi increased to 67.94 US cents as at 8am in Wellington from 67.70 cents yesterday. The trade-weighted index was at 73.01 from 72.76.

Powell reiterated his positive view of the US economy in the second round of monetary policy hearings before legislators, although he noted the central bank was "slightly more worried about lower inflation," a comment that could weigh on the pace for future rate hikes. Meantime, US trade relationships were also noted as President Donald Trump said his administration was getting closer to a deal with Mexico, and will meet European Commission president Jean-Claude Juncker next week. Separately, White House economic adviser Larry Kudlow said trade talks with China have stalled.

"There remain elements of caution, with export prices softening, trade tensions lingering and the domestic economy patchy, yet positioning remains the biggest near-term issue, which we suspect will see the kiwi biased to squeeze higher," ANZ Bank New Zealand economists Liz Kendall and Philip Borkin said in a note. "The NZD bounced overnight, although it is still not back at its post-CPI highs."

With no local data today, investors will watch for Australian employment which may show a softer labour market across the Tasman. The kiwi traded at 91.80 Australian cents from 91.73 cents yesterday.

The kiwi rose to 51.97 British pence from 51.65 pence yesterday after UK inflation data missed forecast at an annual pace of 2.4 percent, prompting investors to pare back their expectations for future rate hikes. The local currency was at 58.35 euro cents from 58.13 cents yesterday.

The kiwi traded at 4.5629 Chinese yuan from 4.5389 yuan yesterday and at 76.67 yen from 76.51 yen.