New Zealand dollar treading water, could gain on further USD weakness

The kiwi was trading at 62.46 US cents at 5:30 pm in Wellington. Photo / 123RF

The New Zealand dollar was treading water after gaining on US dollar weakness when soft data added to concerns that the US-China trade war is negatively impacting the US economy.

The kiwi was trading at 62.46 US cents at 5:30 pm in Wellington versus 62.44 US cents at 8am. The trade-weighted index was at 69.84 from 69.88.

The US dollar took a tumble when the Institute for Supply Management's factory index slipped to 47.8 in September, the lowest since June 2009 and was below expectations for 50.4.

OMF dealer Martin Rudings said the kiwi is only up on US dollar weakness after the manufacturing data but said it may have further to run.

"Technically the US dollar could come off a wee bit. It's lined up across a few currencies that look a bit oversold," he said.

"The reality check is that the data that came out last night still puts the chances of the Fed cutting rates at 50-50 and if it is data dependent then the data is starting to turn a bit," he said. This will weigh on the greenback.

Rudings said investors will now be focused on US jobs data, due Friday night in the US. He said the data may show the economy added fewer jobs than expected and "that could be the catalyst for further USD weakness."

Westpac Bank senior strategist Imre Speizer said, however, any lift in the kiwi will likely be short lived, in particular ahead of likely rate cuts from the central bank.

The Reserve Bank "has demonstrated its willingness to take bold steps, which means markets are likely to remain dovishly positioned for some time," he said in a note. The US Federal Reserve, in contrast, is more measured. As a result the rate differential is likely to weigh on the kiwi.

He also said slowing global growth and trade wars will be headwinds. "All this suggests further downside potential for NZD/USD, with 0.6130 possible over the next few months."

The kiwi traded at 93.06 Australian cents from 93.09. It was at 67.34 yen from 67.25 and at 4.4652 Chinese yuan from 4.4616 yuan. It traded at 57.13 euro cents from 57.07 cents and was at 50.86 British pence from 50.76 pence.