High-flying kiwi tipped to consolidate

The New Zealand dollar’s rally to a six-month high this week may be over as traders look to the looming recession that’s set to drag into next year.

The kiwi traded at US66.24c at 5pm yesterday from US66.74c on Thursday, trimming its likely gain for the week to 0.8 per cent. The trade-weighted index was at 72.53 from 72.95 on Thursday.

The local currency tried to break above US67c this week as relatively upbeat US corporate earnings and some promising trials of Covid-19 vaccines gave investors optimism that the pandemic might be manageable and short-lived.

However, heightened tensions between the US and China kept investors uneasy about the global outlook. Weaker than expected US jobs data and mixed earnings weighed on Wall Street and reminded investors that the pandemic’s impact may drag on for longer and be harsher than they had hoped.

“The reality is that this virus is not going to be over and done with as quickly as everybody thought,” said Martin Rudings, a senior dealer at OMF.

Domestically, Rudings said the impacts of the recession won’t be felt until later in the year when unemployment starts rising. While the kiwi will probably consolidate for a while, he expects it will shed some of its recent gains through the rest of the year.

Local data yesterday showed rising exports, particularly dairy products, helped drive a monthly merchandise trade surplus in June.

The kiwi traded at A93.48c from A93.36c on Thursday, 70.46 yen from ¥71.52, 57.09 euro cents from €57.63c, 52 British pence from 52.39p, and 4.6486 Chinese yuan from 4.6750 yuan.