* Dollar index steady near 5-month lows
* Kiwi dollar jumps after RBNZ hints at rate hike
* Yuan hits new three-year high past 6.40 level
* Graphic: World FX rates tmsnrt.rs/2RBWI5E
LONDON, May 26 (Reuters) - While the dollar was steady around 5-month lows in early London trading on Wednesday, the New Zealand dollar was up more than 1%, having jumped when the central bank hinted at a possible interest rate hike by September 2022.
The dollar index was at 89.745, having fallen over the past two months as investors expect low U.S. rates to drive cash abroad to capture the gains from other countries recovering from the pandemic.
Federal Reserve officials reiterated that they will not change their ultra-supportive monetary policy stance any time soon - although San Francisco Federal Reserve Bank President Mary Daly told CNBC that they are “talking about talking about tapering”.
By contrast, the Reserve Bank of New Zealand (RBNZ) surprised many market participants by projecting that it might hike interest rates as early as September next year.
The New Zealand dollar jumped to a three-month high on the news and held onto these gains during the Asian session. At 0732 GMT it was up 1.2% at 0.70309.
“With the RBNZ moving into the hawkish group of central banks in G10, the NZD real profile is set to be even more attractive, and should continue to provide support to the currency beyond the initial positive reaction,” wrote ING strategists in a note to clients.
Adam Cole, chief currency strategist at RBC Capital Markets, said, “The FX focus may switch to looking for other candidates for shifts in forward guidance going forward and AUD is probably top of that list.”
The Australian dollar - which is seen as a liquid proxy for risk appetite - was up 0.3% at 0.7778.
So far, the Reserve Bank of Australia (RBA) has stressed that its policy will stay super loose for an extended period, with no hike seen until 2024 at the earliest.
China’s onshore and offshore yuan strengthened to three-year highs versus the dollar. The onshore currency broke through 6.40 - a key psychological level - to trade at 6.3913.
A day earlier, China’s major state-owned banks had bought dollars at that level in a move viewed as an attempt to cool the rally, sources said.
The Japanese yen was steady, changing hands at 108.845 per U.S. dollar.
The euro slipped slightly against the dollar, down 0.1% on the day at $1.22385 but still close to its highest since January .
Commerzbank strategist You-Na Park-Heger wrote in a note to clients that the euro is becoming more attractive, but she does not see scope for much further gains before the June 10 European Central Bank meeting.
In cryptocurrencies, bitcoin was up 5%, rising above $40,000 in its third consecutive day of gains. Ether was up 6% at around $2,875, close to where it started the month .
Reporting by Elizabeth Howcroft; Editing by Giles Elgood