Bears sceptical at kiwi's rebound

The New Zealand dollar has rebounded against the greenback after being sold off after last week's rate cut, but the weakness of its recovery compared with other currencies may signal investors are growing wary of the local economy.

By 8am today the NZ dollar was buying US57.4c, little changed from its level at 5pm yesterday, having struggled to get near US57.7c overnight.

Having lost almost a cent against the US dollar after last week's 50-basis-point cut by the Reserve Bank, the kiwi regained all that and more as gains in equity markets yesterday on upbeat US economic data stoked investor appetite for riskier currencies.

Royal Bank of Canada currency strategist Sue Trinh said while the kiwi/US was currently hostage to "incredibly resilient risk appetite", she pointed out that the local unit had underperformed relative to most other major currencies.

"I really think the deteriorating fundamentals in New Zealand and also the RBNZ's stated commitment to keep monetary conditions loose in New Zealand is actually weighing on kiwi on the crosses."

Yesterday's Quarterly Employment Survey was "pretty dire" and suggested downside risk to employment figures.

"That's going to be a continued theme over coming months and will weigh on consumers' psyche and consumption.

"We are very bearish for kiwi and we have forecast new post-float lows for this cycle below US39c but what is challenging that view is just the resilience of equities which is keeping the US dollar weak."

BNZ currency strategist Danica Hampton said Thursday's first-quarter Household Labour Force Survey would be the key event for the kiwi this week

"Everyone, including ourselves, expects a clear jump in the jobless rate - to 5.3 per cent from Q4's 4.7 per cent."

Hampton said it was also worth noting that the kiwi's recent strength against the US dollar looked out of line with the narrowing of NZ-US interest rate spreads "which suggests there isn't a compelling fundamental reason to chase the NZD/USD significantly higher from here".

"This week's New Zealand data should help keep the downward pressure on NZD/USD."

Westpac currency watchers were also bearish on the kiwi and were expecting the employment data to play a part in forcing it lower.