The New Zealand dollar shrugged off a weak dairy auction and pushed higher against the greenback as investors pared back slightly on their expectations that the kiwi might continue to fall.
The kiwi dollar rose to 67.65 as at 5pm in Wellington from 67.56 US cents as at 8:30am in Wellington and 66.96 cents late yesterday. The trade-weighted index climbed to 72.28 from 71.96.
The kiwi shrugged off news that dairy product prices declined at the Global Dairy Trade auction overnight, led by a larger-than-expected drop in whole milk powder.
Imre Speizer, senior markets strategist at Westpac Banking Corp in Auckland, said it may have benefitted as investors opted to pare back on their short positions, in particular given that net short positioning in the kiwi-US is significant.
Going short means betting on a currency to decline. A trader may borrow the currency with the idea they can buy it cheaper down the track, leaving some profit when the money is repaid.
Data this week from Commodity Futures Trading Commission (CFTC) shows that speculative traders' net positions are short NZD and long US dollars to the extent of US$1.2 billion ($1.7b), at levels reached only a few times since 2010.
"There is very imbalanced positioning with most of the speculative market very short the kiwi" and that might be correcting slightly, said Speizer. He said the fact that it barely budged on the surprisingly weak dairy auction speaks to the positioning story as "it should have fallen on that, regardless of what the US dollar did."
Looking ahead, he said markets will be watching for minutes from the latest Federal Reserve Open Market Committee meeting and jobs data out of the US but noted that trading will be light overnight due to the July 4 Independence Day holiday in the US.
The local dollar traded at 4.4821 yuan from 4.4873 yuan yesterday while it rose to 91.38 Australian cents from 91.28 cents yesterday.
The New Zealand dollar advanced to 74.70 yen from 74.22 yen yesterday and rose to 57.99 euro cents from 57.57 cents and gained to 51.24 British pence from 50.99 pence.
New Zealand's two-year swap rate was unchanged at 2.14 per cent while 10-year swaps rose 1 point to 3.00 per cent.