The New Zealand dollar touched a 27-month high as manufacturing data in the US and China stoked risk appetite.
The kiwi pared its gains as investors refocused on the Federal Reserve's quantitative easing plans.
The US ISM manufacturing index and China's PMI beat analysts' forecasts lifting investors' appetite for risk, and helped lift the kiwi to as high as 76.91 US cents.
The upbeat sentiment eased as investors squared up their positions in preparation for the Fed's QE statement, expected to involve printing between US$80 billion and US$100 billion a month to help revive a sagging recovery in the US. The Reserve Bank of Australia will review its target cash rate today, and expected to keep it at 4.5 per cent, with the market pricing in a 25 per cent chance for a hike.
"Sentiment overall is fairly upbeat - the kiwi flirted with a 27-month high, but people are still wary of risk positions ahead of QE later this week," said Mike Jones, strategist at Bank of New Zealand.
The RBA "could go either way, and after the decision we're likely to see volatility in the kiwi and the Aussie," he said referring to the currencies colloquially.
The kiwi slipped to 76.47 US cents from 76.59 cents yesterday, and rose to 67.82 on the trade-weighted index of major trading partners' currencies from 67.63.
It was little changed at 61.60 yen from 61.69 yen yesterday, and increased to 77.71 Australian cents from 77.47 cents.
It gained to 55.08 euro cents from 54.81 cents yesterday, and was little changed at 47.68 pence from 47.69 pence.
Jones said the currency may trade between 76.U.S. cents and 76.90 cents today, with the RBA the major risk factor in the local session.
The RBA was the first Group of 20 nation to start tightening policy when it dodged recession last year.
Investors are picking the RBA to lift its benchmark rate 44 basis points over the next year, while New Zealand's central bank is expected to hike the official cash rate by 77 basis points, based on the Overnight Index Swap curve.
Local wage data is expected to show New Zealand pay packets grew 0.4 per cent in the three months through September, and unless there's a rogue number probably won't impact on the currency, Jones said.
American mid-term elections are held in Tuesday in the US, where they will vote on the make-up of the House of Representatives, a third of the Senate, and two-thirds of state governors.
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