The New Zealand dollar is headed for a 0.2 per cent weekly gain against the greenback, benefiting from an uptick in risk appetite, but demand remains capped by the possibility of a domestic rate cut should growth fail to fire.
The kiwi traded at 65.91 US cents at 5pm versus 65.85 cents at 8am in Wellington and 65.83 cents yesterday. It traded at 65.79 last Friday in New York. The trade-weighted index was at 71.69 from 71.65.
Markets were more upbeat after China and the United States agreed to sit back down at the table for the first time since June, easing fears of a full-blown trade war between the two nations.
While the kiwi ticked up slightly, it is largely unchanged from where it was when the kiwi central bank last week said that it would be keeping rates on hold for longer and could even opt for a cut if necessary if growth doesn't pick up as expected.
In a note entitled "Can't dodge the doves," Annette Beacher, chief Asia-Pac macro strategist for TD Securities, today said the market has now priced in a 33 per cent chance of a rate cut "which is fair as the markets digest how dovish the RBNZ is."
She still expects the next move to be up, but now tips the first rate hike to come in November 2019 versus her prior view of May.
"As we remain more constructive about the outlook for New Zealand, we need to see substantial growth and/or inflation disappointment to push the first hike into 2020," she said.
On the day "there is a bit more of a risk-on bias," which is helping shore up the kiwi, said Tim Kelleher, head of institutional foreign exchange sales at ASB Bank.
"Given the positioning and the fact that things seemed to have calmed down slightly, the risk is for a further squeeze," he said.
The market remains very "short" the New Zealand dollar which means traders are still betting on it to decline.
Kelleher, however, expects it to hold above 65.75 US cents and says there are plenty of exporters lined up if it dips below 65.60 US cents.
The kiwi traded at 90.70 Australian cents from 90.52 cents yesterday, as the Aussie lost some ground. Reserve Bank of Australia Governor Philip Lowe reiterated in testimony to parliament today that the central bank is in no hurry to lift rates.
The local currency decreased to 4.5351 Chinese yuan from 4.5379 yuan yesterday and traded at 73.05 yen from 72.91 yen. It was little changed at 57.90 euro cents from 57.83 cents yesterday and traded at 51.78 British pence from 51.74 pence.
New Zealand's two-year swap rate rose one basis point to 2.03 while the 10-year swap rate was unchanged at 2.87 per cent.