"It's US dollar weakness, kiwi strength," said Martin Rudings a dealer at OMF, adding that the US dollar has weakened in each of the past seven trading days.
Less onerous than expected new bank capital rules the Reserve Bank of New Zealand announced yesterday and a raft of positive data have spurred the currency's gains to its highest levels since early August.
Near-record terms of trade, September-quarter retail sales coming in three times economists' expectations, and still-pessimistic but improving business sentiment have all been factors in the domestic currency's gains.
"What's also supporting the kiwi is that the Aussie data has been very weak," Rudings says. The market is now pricing in a 70 per cent chance of the RBA cutting rates at its next meeting in February but the pricing on a likely cut by the RBNZ has eased to just 15 per cent.
That saw the kiwi rise to 95.86 Australian cents today from 95.77 cents this morning and 94.83 cents this time last Friday.
Reflecting the currency's gains, interest rates have also been rising. The two-year swap rate climbed to a bid price of 1.2242 per cent from 1.1914 per cent yesterday and 1.1326 per cent last Friday. The 10-year swaps rose to 1.6500 per cent from 1.6000 per cent yesterday and 1.4800 per cent a week ago.
Rudings says trading was very quiet today.
"When the market gets illiquid and a bit directionless, it will tend to gravitate towards where the positions are," he says.
Given the extent of short positions in the kiwi, when those positions are unwound, the most likely impact is to drive the currency higher.
"You could see some momentum as these get unwound towards the end of the year – its definitely a squaring up, rather than things going long."
The "Trump" factor continues in the background but the market is reacting less each time the US president utters the latest contradictory comment on the likelihood he will sign a long-promised preliminary trade deal with China.
"We don't know what to believe when he talks about China. The market's still a bit paralysed by that. In my view, they won't get a deal over the line this year," Rudings says.
The next potential market mover will be the release of US non-farm payrolls data later today. The market is expecting that economy added 180,000 jobs in November from 128,000 in October.
The New Zealand dollar was trading at 59.02 euro cents from 58.96, at 49.81 British pence from 49.75, at 71.24 yen from 71.19, and at 4.6192 Chinese yuan from 4.6120.
