New Zealand dollar ticked up

The New Zealand dollar ticked up Friday on stronger equity markets, but the currency struggled to push ahead as some traders say its recent rally has topped out.

“I think the currency will head further down now that it appears to have topped out. Unless we have a big (positive) surprise from U.S. payrolls, I don’t see us pushing much higher,” said Imre Speizer, senior markets strategist at Westpac.

The U.S. releases its May non-farm payrolls data tonight.

Speizer said the Kiwi has lost its upward momentum, and has only managed to hold up because of some residual buying on the back of higher equity markets.

Domestic swap rates and bond yields were squeezed higher in a thin market. A local trader said mortgage-related paying interest is also pushing rates up, with the yield curve steepening.

“Some of the comments from various central banks overnight has seen a weaker offshore market and that has filtered through into the local market.”

He said the market was likely to tread warily ahead of Thursday’s review of the Official Cash Rate by the Reserve Bank of New Zealand. Economists are divided on whether the central bank will pause its aggressive easing cycle or cut another 25 basis points. The RBNZ has sliced the cash rate by 575 basis points since July to a record low 2.5%.

Westpac’s Speizer said the New Zealand dollar will probably struggle around current levels before dribbling down, possibly toward US$0.6150 levels.

He said equity markets are likely to lose steam once investors start expecting to see stronger data rather than data that are simply less negative. “I think expectations around data have gotten too far, people will now be looking a bit more than just for data to be bouncing off a low base,” he said.

ANZ bank said in a report that the Kiwi may face resistance around US$0.6400 ahead of the RBNZ meeting next week. However, the bank said that the U.S. dollar will be a crucial factor in the local currency’s fortunes.

“Ultimately, for the NZD to head lower, we need the USD retracement to continue. Perhaps tonight’s non-farm payrolls number could be the catalyst for this,” the report said.