The New Zealand dollar has rebounded after the Reserve Bank left interest rates on hold and warned the currency's recent appreciation may keep rates low.
Traders have taken RBNZ governor Graeme Wheeler's "watch and wait" language as a sign an immediate fall in the kiwi isn't warranted.
The currency recently traded at 66.97 cents, recovering from a decline of more than one US cent, after the RBNZ reiterated that it has another rate cut up its sleeve and may have to maintain a lower track for rates if the currency remains strong.
The kiwi had already taken a hit when the US Federal Reserve dropped its watch on global market volatility when reviewing the federal funds rate, leaving open the chance of a hike in December. The trade-weighted index was recently at 72.65 from 72.58 before the Fed meeting, and higher than the Reserve Bank's projected average 70 level through the September quarter.
RBNZ governor Wheeler kept the official cash rate (OCR) at 2.75 per cent, and reiterated he was likely to cut rates again to spur tepid inflation back towards the middle of his one per cent to three per cent target band, while noting the kiwi's 5.8 per cent appreciation since the start of September could erode tradables sector activity.
ANZ Bank New Zealand senior FX strategist Sam Tuck said the central bank's wait-and-see approach meant investors didn't have to react immediately to the warning, and could sell the kiwi on rallies.
"They're waiting and seeing - the kiwi should decline over all, and if it does increase or sustain at these levels, it will mean a lower projection, but that's down the path," Tuck said.
Thursday's meeting by the Federal Open Market Committee (FOMC) may reduce some demand for the kiwi after the US policymakers dropped their reference to global markets when keeping the fed funds rate between zero and 0.25 per cent, a move interpreted as keeping alive a possible hike in December.
Still, the prospect of increased money printing programmes in Europe and Japan will continue to boost the allure of the kiwi dollar on other currency cross-rates, with New Zealand's relatively strong economic outlook and positive interest rates.
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