The New Zealand dollar held its ground on Thursday, appearing to have found a base near a five-year trough after an extended slide of more than 10 percent in two months.
The kiwi edged up to $0.6909, pulling away from a low of $0.6815 set earlier this week, but far from its April high of $0.7744.
Sentiment for the currency has soured as the Reserve Bank of New Zealand cut interest rates and kept the door wide open to more easing, which many expect to happen next month.
For now, speculators appeared to be taking profits in very bearish positions that could lift the kiwi back towards $0.7000 in the near term.
The kiwi’s trade-weighted index climbed to 72.01, from a three-year low of 71.37.
Yet, many traders suspect its downtrend will remain intact and see the currency reaching $0.6500 later in the year as expected U.S. rate rises boost the greenback.
Long-term technical support lay around $0.6870, the 50 percent retracement of the kiwi’s 2009-2014 rally.
The kiwi was also firmer against its peers, although it remained near multi-month lows on the euro and the Australian dollar.
“With the easing cycle in New Zealand now under way, and with risks there continuing to point to a larger-than-expected easing cycle, the medium term direction for the AUD/NZD is still likely higher,” said Daniel Been, senior FX strategist at ANZ.
“However, from here we need to see either further proof of deterioration in New Zealand, or of acceleration in Australia.”
In contrast, the Aussie has been in a holding pattern against the greenback for weeks, perhaps reflecting a steady outlook for Australia’s interest rates.
It was up 0.2 percent at $0.7721, comfortably in the middle of this month’s $0.7600-$0.7850 range. The Aussie has been drifting sideways since carving out a six-year trough of $0.7534 in early April.
New Zealand government bonds rose, nudging yields 3 basis points lower across the curve.
Australian government bond futures were flat with the three-year and 10-year contracts little changed at 97.920 and 96.9200 respectively.