The New Zealand dollar edged up as investors increased their holdings in the local currency after a 6.7 per cent slide last quarter amid expectations super-loose monetary conditions in the US will end this year.
The kiwi rose to 78.01 US cents from 77.70 cents at 5pm in Wellington yesterday. The trade-weighted index increased to 73.98 from 73.75 yesterday.
The New Zealand dollar is rebounding following a quarterly decline after the Federal Reserve signalled an end to its massive monetary stimulus, sending investors back to the greenback. Institutional investors last week rebalanced their funds going into the end of quarter, having flocked to the greenback in a three-month period which saw the US central bank say it plans to pull back on its bond buying programme if economic data continues to improve.
"It's just a bit of profit taking," said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional. "Those big month end flows last week were biased slightly to the left hand side so we are seeing a bit of a recovery."
The New Zealand dollar will likely find support at 77.75 US cents today, Kelleher said.
Traders are looking ahead to Friday for a report on US jobs data, a key indicator for the US Federal Reserve. Fed chairman Ben Bernanke has said the Fed may start tapering its US$85 billion a month bond buying programme this year and end it in mid-2014. The asset purchases, which aim to stimulate growth in the world's largest economy, have debased the greenback and bolstered supported for currencies such as the New Zealand and Australian dollars.
US June non-farm payrolls probably rose 165,000 last month, down 10,000 from May while the unemployment rate is predicted to fall to 7.5 per cent from 7.6 per cent, according to Reuters polls. Bernanke has made 7 per cent the target for beginning to ease its stimulus efforts.
"We are focusing on Friday night more than anything else but certainly there is a bit of profit taking ahead of that," Kelleher said. "There's a risk of a squeeze later this week, especially if non-farm payrolls isn't as strong as expected."
Weaker numbers would push out expectations of Fed tapering, and bolster support for the Australian and New Zealand dollars, he said.
The Australian Reserve Bank is expected today to hold interest rates at a record low 2.75 per cent following its monthly meeting. Some 21 economists surveyed by Reuters expect the rate will remain unchanged while two expect a cut to 2.5 per cent.
The bank is likely to continue to try and talk the currency lower, Kelleher said.
The kiwi was little changed at 84.55 Australian cents, from 84.60 cents at 5pm yesterday.
In New Zealand today, the ANZ commodity price report at 1pm is likely to see the index stay near all-time highs, UBS New Zealand economist Robin Clements said in a report.
The local currency gained to 77.79 yen from 77.22 yen yesterday after Japan's quarterly Tankan index showed positive sentiment among large manufacturers for the first time in seven quarters. The measure rose to 4 in June from minus 8 in March, the Bank of Japan said.
The kiwi gained to 59.79 euro cents from 59.64 cents yesterday and increased to 51.29 British pence from 51.04 pence.