Wellington, Aug 5 - The New Zealand dollar hit fresh 10-month highs on Wednesday as recovering global dairy prices, the country's top export earner, boosted appetite for the higher yielding currency.
The kiwi trades around $0.6711/17 at 0515 GMT, compared with $0.6664/66 in late trade on the local market on Tuesday. It hit a high of $0.6751 in early Asian trading, its best since Oct. 1.
New Zealand's Fonterra, the world's biggest dairy exporter, said prices jumped 26 percent at its latest auction, recovering after a recent run of falls. Dairy products account for around a quarter of the country's export earnings.
"We are finally getting some support from the commodity side for the kiwi, whereas previously kiwi was outpacing commodity gains," said HSBC Treasury chief manager Daniel Brdanovic.
Fonterra alone generates over 7 percent of New Zealand's GDP.
"Currency traders are becoming dairy watchers, and will increasingly try to predict the outcomes of the Fonterra auctions," says Westpac's strategist Imre Speizer.
The New Zealand currency was also boosted by further weakness in the U.S. currency after strong U.S. housing data raised hopes the worst of the recession was over, prompting cash to flow into riskier higher-yielding currencies.
The Fonterra news also shifted the whole interest swap rates curve higher, though it later retreated to Tuesday levels.
Two-year swap rates jumped to as high as 4.02 percent before settling at 3.89 percent, and five-year swaps also fell back to 5.26 percent from an intra-day high of 5.33 percent.
The kiwi was also strong against the yen, scaling a 10-month high of 64.35 yen before slipping back 63.77 yen.
Investors are now awaiting Thursday's employment data to see what toll the country's prolonged recession is taking on the labour market. A Reuters poll sees the official jobless rate rising to 5.6 percent.
Yields on the benchmark NZ 10-year bond were 3.5 basis points higher at 5.84 percent.