The New Zealand dollar jumped to a five-week high even as US jobs data cemented bets for the Federal Reserve to raise interest rates next week, as traders predict the hike was already priced in and turned their attention to the likely pace of increases next year.
The kiwi touched 67.86 US cents, and was trading at 67.36 cents at 8am in Wellington, from 67.44 cents at the New York close and 66.80 cents on Friday. The trade-weighted index was at 72.90 from 72.21 on Friday.
The US dollar failed to rally even after the strong US non-farm payrolls data, as traders bet the information was already priced into the greenback, with the broad US dollar index having gained 9 percent so far this year. Traders instead turned their attention to the likely pace of US interest rate hikes next year, amid growing expectations the Fed will probably raise rates very slowly.
The focus is also turning to this Thursday's Reserve Bank of New Zealand meeting, where traders are pricing in only a 50/50 chance of a cut.
"The markets are looking at the Fed next week and thinking well, them going 25 pips, is that really justifying the current market positioning," said ANZ Bank New Zealand senior FX strategist Sam Tuck. "What we saw is the payrolls result came out and the US dollar went nowhere.
"People decided to remove positioning from the market. The market has now moved past the first hike and is now looking at the pace of hikes next year and if the data does slow down a bit, that's going to slow down the pace of hikes next year which means the US dollar won't have as much support. It's going to be a flatter trend, lower trajectory, and a lot more volatility around it which means you can't justify just sitting massively long," he said, referring to so-called long bets in the currency which anticipate an asset will gain in value.
ANZ expects the kiwi to trade between 66.80 US cents and 67.80 cents today.
In New Zealand today, third-quarter wholesale trade data is scheduled for release at 10:45am.
The New Zealand dollar advanced to 91.66 Australian cents from 91.24 cents on Friday, increased to 61.94 euro cents from 61.11 cents, rose to 44.58 British pence from 44.17 pence, gained to 82.99 yen from 81.88 yen and increased to 4.3116 yuan from 4.2722 yuan.