The New Zealand dollar jumped 1 US cent from local trading on Friday after key US employment data failed to meet the expectations of some short-term traders who had bet the data would print even higher.
The kiwi touched 82.93 US cents this morning, its highest level in more than two weeks, and was trading at 82.82 US cents at 8am in Wellington from 82.81 cents at the New York close and 81.96 cents at 5pm in Wellington on Friday. The trade-weighted index advanced to 77.76 from 76.97 in Wellington on Friday.
The kiwi advanced even after a US report on Friday showed non-farm payrolls increased by 203,000 jobs last month, higher than the 185,000 expected by economists, and the unemployment rate dropped to a five year low. Strong economic data in the US typically strengthens the greenback, but some traders sold the currency after they were caught short on expectations the data would print even stronger.
"The market expectations were a lot higher than those consensus expectations from the economists," said Sam Tuck, senior manager FX at ANZ New Zealand. "You saw an initial move in the correct direction and then all the short-term guys were one way, wanting to get out of it. We saw a good old fashioned position squeeze."
Still, Tuck said the data supported the longer term trend of a revival in the US economy. Traders are eyeing strength in the US economy for indications on when the Federal Reserve is likely to start pulling back its US$85 billion a month bond-buying programme which has weakened the greenback. The Fed next meets on Dec. 17-18.
"Just because the short term market is up, I don't think it actually changes the message," Tuck said. "The US economy is recovering. At some point the Fed will have to withdraw stimulus, whether they do that at the December meeting or the March meeting. It has increased the probabilities that it is going to be in two weeks' time at the December meeting."
A Reuters poll following the US employment data brought slightly forward expectations for tapering. Eight of 18 primary dealers surveyed expect tapering to begin in March, five expect it in January, four pointed to either December or January and one said the first quarter of 2014.
In a Reuters poll in early November, two of the 16 dealers surveyed thought the Fed would not start trimming the purchases until April or the middle of 2014 and just one dealer saw it occurring as early as December.
"This will probably give the RBNZ a little bit of comfort, despite the market moves, because the US data continues to improve and that means when they start their hiking cycle they are doing so in the backdrop of an improving US situation which is going to mute somewhat the positive impact on the kiwi that their actions will have I would say they will be breathing a short sigh of relief," said ANZ's Tuck.
Reserve Bank of New Zealand governor Graeme Wheeler is expected to keep rates on hold at the bank's policy review this Thursday, amid expectations the bank will raise rates in the first quarter of 2014.
In New Zealand today, traders will be eyeing data on third quarter manufacturing activity at 10:45am and a Quotable Value report on November house prices about midday.
The New Zealand dollar touched an eight-month high of 85.35 yen, and was trading at 85.23 yen at 8am from 83.43 yen in Wellington on Friday. Data out of Japan today includes the final reading of third quarter GDP and October balance of payments.
The Australian and New Zealand currencies may be underpinned today by Chinese data at the weekend showing Asia's largest economy in November had the largest trade balance since 2009. A report on Chinese inflation for November will be released at 2:30pm New Zealand time.
The local currency touched a new five-year high of 91.18 Australian cents in late New York trading on Friday, and was trading at 90.71 cents at 8am in Wellington from 90.43 cents on Friday.
The kiwi touched a two-week high of 50.76 British pence and was trading at 50.66 pence at 8am in Wellington from 50.18 on Friday. The kiwi rose to 60.41 euro cents from 59.95 cents on Friday.