KEY POINTS:
The local currency market decided to take an unofficial holiday today to keep in step with official holidays in the United States, Britain and Germany.
In sleepy trading, the kiwi traded in a tiny US72.51-US72.76c range, with the currency ending on US72.63c, virtually unchanged from its opening and yesterday's close.
It was the same story with the trade-weighted index which ended on 70.95, although the Australian dollar rose to A88.73c from A88.67c
Bank of New Zealand currency strategist Danica Hampton said a recent bout of NZ dollar softness was attributable to a recovery in the greenback, and the narrowing of NZ-US interest rate spreads.
In the near-term, the more bullish US dollar sentiment would likely limit the NZ currency against the greenback, she said.
But solid support from a mix of local and Asia, "real-money" and speculative, had been evident on dips to the US72.30-40c region.
She suspected some fresh impetus would be needed for the kiwi to make a convincing break lower against the greenback.
That could come from another interest hike. Westpac economists this week said they expect the Reserve Bank to hike rates again on June 7 and one more time after that before year-end.
"We would caution... that the pickup in the US dollar is largely based on a shift in sentiment, so by nature is likely to be short-lived," Westpac said in its weekly forex preview.
"Fundamentally, the conditions are not in place for a sustained fall in the NZ dollar. The domestic economy has maintained its momentum, and the increased payout announced by Fonterra will provide a substantial boost to demand over the next year."
Westpac believes financial markets are understating the risk of more rate hikes.
Its economists also note that historically the kiwi had its most volatile time during the northern summer holidays when there was less liquidity and wider price swings.
"This in itself doesn't provide any clues on where the currency will go, but it means that any short-term trends can become amplified."
In the major currencies, the yen pulled back from a three-month low against the US dollar after upbeat data further stoked expectations that the Bank of Japan will raise interest rates in the next few months.
A drop in Japan's jobless rate to a nine-year low in April and consumer spending that beat market forecasts in the same month sent the two-year bond yield to a 10-year high and prompted investors to buy the yen.
Reuters currency rates:
4.30pm today 5pm yesterday
NZ dlr/US dlr US72.63c US72.64c
NZ dlr/Aust dlr A88.73c A88.67c
NZ dlr/euro 0.5402 0.5399
NZ dlr/yen 88.14 88.40
NZ dlr/stg 36.61p 36.61p
NZ TWI 70.95 70.94
Australian dollar US81.83c US81.94c
Euro/US dollar 1.3435 1.3457
US dollar/yen 121.38 121.69
- NZPA