The New Zealand dollar gained after Federal Reserve governor Lael Brainard cooled expectations for a US rate hike next week, while the domestic economy continues to stoke demand for the kiwi.
The local currency traded at 73.39 US cents in Wellington from 73.50 cents at 8am, up from 73.17 cents on Monday. The trade-weighted index rose to 78.13 from 77.93.
Brainard's speech disappointed some investors who were looking for signs the Fed's poised to raise rates next week, as the voting member warned against moving too early due to low inflation and a slack labour market.
The mixed views from Fed officials had warmed up traders to an early hike, which had sapped demand for a kiwi that's been buoyed by New Zealand's relatively high interest rates and upbeat economic outlook.
"Brainard overnight put the kybosh on things, but I think September is a real risk for the Fed - it's way underpriced, and that will do (Reserve Bank governor Graeme) Wheeler's job for him," said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional in Auckland.
Government data on Tuesday showed New Zealand's food prices rose at their fastest monthly pace in more than five years, seasonally adjusted, as fruit and vegetables and grocery items jumped in August.
Food prices account for 19 percent of the consumers price index, the RBNZ's mandated inflation target.
Wheeler has been thwarted from reaching his 2 percent inflation target as the strength of the kiwi makes imports cheaper, and had to refrain from cutting interest rates too sharply for fear of inflaming an already hot property market.
That comes ahead of June quarter balance of payments data tomorrow and gross domestic product on Thursday, which are expected to show the country's economy is in good heart.
New Zealand's two-year swap rate edged up one basis point to 2.02 percent at 5pm in Wellington, and 10-year swaps were unchanged at 2.53 percent.
The local currency increased to 97.28 Australian cents from 97.09 cents and gained to 4.9017 Chinese yuan from 4.8857 yuan. It rose to 65.33 euro cents from 65.07 cents and was little changed at 55.02 British pence from 55.12 pence. The kiwi slipped to 74.83 yen from 75.03 yen.