The New Zealand dollar has advanced as traders who had bet on the currency’s decline took profits ahead of the Reserve Bank interest rate decision this week.

The kiwi rose to US66.32 cents at 0800 on Wednesday in Wellington, from US65.89c at 1700 on Tuesday. The tradeweighted index gained to 70.37 from 70.21.

The Reserve Bank is expected to cut the official cash rate by 25 basis points on Thursday, with some saying there is an outside chance of a 50 basis point cut.

Strong immigration data on Tuesday may have prompted some traders to pull back their bets on a 50 basis points cut. Those betting the currency would decline may have taken profits.

Speculative investors are holding the biggest net short position in the NZ dollar on the Chicago Mercantile Exchange since the series began in 2003. A short position is a bet a currency will fall in value.

“It looks like it’s a bit of a short squeeze ahead of the OCR announcement,” said Peter Cavanaugh, client advisor at Bancorp Treasury Services.

“Speculators are exceedingly short NZ dollars so this is a chance to take a bit of profit.

“We have also seen a bit of US dollar weakness overnight so the world had probably gone too far on the currency front, and with the substantial positioning against the NZ dollar, the rebound is exacerbated.”

The focus on Wednesday will be Australian second-quarter inflation and a speech by Reserve Bank of Australia governor, Glenn Stevens, in Sydney.

In the morning, the kiwi slipped to 89.34 Australian cents from A89.60c on Tuesday, fell to 60.64 euro cents from 60.91 cents, gained to 42.65 British pence from 42.34 pence, and advanced to 82.18 yen from 81.99 yen.

BusinessDesk