It's pronounced nih-kay-lee (nɪˈkeɪli). It is not capitalised, ever, not even at the beginning of sentences; avoid it at the beginning of sentences if that bothers you. It is always 'niqaeli' and, if you shorten it, 'niq'.

niq is also not capitalised and it is pronounced neek (nik). It is NOT pronounced like 'nick' (nɨk). This not congruent with the pronunciation of the full form, I know. Diminutives are like that sometimes! But mostly it is because you will confuse the shit out of me and/or I will not respond at all whilst I subconsciously assume you were addressing my spouse.