NZ dollar holds overnight gains as markets still cheered about improving US-China relations

New Zealand coins. Photo: John Sefton

The New Zealand dollar held overnight gains against the greenback as investors remain cheered about cooling trade tensions between the US and China.

The kiwi traded at 69.43 US cents as at 5pm in Wellington versus 69.41 cents at 8am, and up from 68.97 cents yesterday. The trade-weighted index advanced to 72.79 from 72.50.

The local currency rallied after US-China trade tensions dissipated, holding those gains Tuesday in Asian trading and traders say it could head toward 70.50 US cents in the short term, depending on what the US dollar does.

Bank of New Zealand senior markets strategist Jason Wong said in a research note that he expects it to remain anchored around the 70 US cents to 71 US cents mark for much of the rest of the year and it has strong technical support in the 68-69 cents zone.

"Fundamentally, the NZD doesn't deserve to go much lower than that," in particular given the positive terms of trade, said Wong.

"There was a good squeeze (in the kiwi overnight) and the kiwi has clearly found a base around 68.50 US cents," said Tim Kelleher, head of institutional foreign exchange sales at ASB Bank. He said it underperformed against the Australian dollar slightly but that was likely because of weaker-than-expected first quarter retail sales data Monday.

The kiwi traded at 91.62 Australian cents from 91.70 cents yesterday, with Australia's currency also a bigger beneficiary from the cooling trade tensions.

Kelleher warned the issue of Mycoplasma bovis could still impact the currency as the investors move to factor in the possible loss of production as well as potential management costs. "No-one has put a number on anything here" but its definitely a risk factor, he said.

Agriculture and Biosecurity Minister Damien O’Connor reiterated Tuesday the government and farming industry representatives will decide on eradication or long-term management by next week.

The kiwi rose to 4.4258 Chinese yuan from 4.3999 yuan yesterday and gained to 58.95 euro cents from 58.69 cents yesterday. It traded at 77.01 yen from 76.72 yen yesterday and gained to 51.74 British pence from 51.33 pence.

New Zealand's two-year swap rate fell 1 basis points to 2.19 percent while 10-year swaps fell 3 basis points to 3.19 percent.