By Jonathan Underhill
The New Zealand dollar has risen to a six-month high on a trade-weighted basis as the nation's relatively high yields drew investors in the quiet Christmas trading period.
The trade-weighted index rose as high as 74.50, the highest since June 11, and was at 74.48 as at 5pm today in Wellington, from 74.12 on Monday in Asia.
The kiwi gained to US68.70 cents from US68.42c.
While the Reserve Bank of New Zealand has cut its benchmark rate to 2.5 percent, it still overshadows Australia's at 2 percent and the Federal Reserve in a range of 0.25 percent to 0.5 percent.
Traders are betting Reserve Bank governor Graeme Wheeler will cut the official cash rate again, while the Fed has begun a gradual tightening cycle, but in the low-liquidity holiday period, the search for yield is trumping fundamentals, they said.
"US investors have been exiting their positions at the end of the year, before the holiday" said Grant Bodle, senior corporate dealer at HiFX.
"They tend to buy the kiwi for the yield, and are buying the Australian dollar as well."
On Tuesday, the kiwi rose to 46.08 British pence at 5pm from 45.82p late yesterday. The pound has fallen out of favour as investors push out expectations for when the Bank of England may hike interest rates.
The New Zealand dollar also rose to 94.52 Australian cents from A94.06c and gained to 4.4554 yuan from 4.4314 yuan. It rose to 82.62 yen from 82.35 yen and gained to 62.56 euro cents from 62.32c.
The two-year swap rate was unchanged at 2.85 and 10-year swaps were at 3.73 percent.