Data over the weekend showing stronger-than-expected employment growth in November has added more weight to expectations that the US Federal Reserve will soon start to wind back its quantitative easing programme, which is aimed at kick-starting the US economy.
On Saturday (NZ time) the US Department of Labor said non-farm payrolls rose by a seasonally adjusted 203,000 in November, up from 200,000 in the preceding month, and well over market expectations of around 185,000.
Additions to the national payroll took the unemployment rate down to 7 per cent - a five-year low.
Earlier in the week, official data showed that US gross domestic product expanded at an annual rate of 3.60 percent in the third quarter, the strongest rate since the beginning of last year.
New Zealand currency strategists said the strong November payrolls report should have put upward pressure on the US dollar and put downward pressure on the Kiwi.
As it turned out, the US dollar was mixed, falling against the euro but gaining against the yen. US 10-year bond yields eased slightly, contrary to expectations that a strong payrolls report would help lift rates.
Over the weekend, the Kiwi was barely-changed from its Friday close, trading at US81.95c.
``Overall, this should be positive for US interest rates and it should be positive for the US dollar,'' Westpac senior markets strategist Imre Speizer said. ``The fact that that's not happening is a bit puzzling,'' he said.
The US share market's reaction to the news was unequivocal - the Dow Jones industrial average rallied by 198.69 points, or 1.3 percent, to 16,020.20.
Sam Tuck, senior manager foreign exchange at ANZ New Zealand, said the payrolls data would have come as some relief to the Reserve Bank because it would take the pressure off a still firm local currency while clearing the way for the bank to raise interest rates early next year.
Christian Hawkesby, head of fixed interest at Harbour Asset Management, said the news meant the Federal Reserve could start tapering its US$85 billion a programme this month or in March, but that it need not be in any rush.
``The US dollar is anchored by the commitment to keep official interest rates at near zero well past 2014,'' he said. ``That is likely to keep the NZD/USD elevated for some time yet.''
The payroll and unemployment numbers ``are impressive in terms of a stronger economy and the need to exit QE,'' Pacific Investment Management Co's Bill Gross told Bloomberg Radio. He said the odds of a December wind-back were ``at least 50-50 now''.
The New Zealand dollar, while still ahead of its long-term average, has dropped back from US84.9c in October, despite a string of robust economic data on the domestic front.
Meanwhile the New Zealand dollar remains near 5-year highs against the Australian dollar today, highlighting the relative strength of the local economy against its Australian counterpart.