The New Zealand dollar is trading at 5-year highs against the Australian dollar but continues to deteriorate against the US dollar, despite evidence that the local economy is strengthening.
Currency strategists said the New Zealand dollar was being pulled in different directions - higher by a weakening Australian dollar and lower by a stronger US dollar. The kiwi touched a high of A90.11c yesterday - its highest point since late in 2008.
At its meeting yesterday, the Reserve Bank of Australia opted to leave the cash rate unchanged at an accommodative 2.5 per cent, and once again tried to talk the value of its currency down further.
"The Australian dollar, while below its level earlier in the year, is still uncomfortably high," said RBA governor Glenn Stevens.
NZ/Australian dollar cross rate had spent just 20 per cent of its time since the 1985 float at A88c or higher, according to ANZ data. The currency was above 90c for part of 2004, all of 2005 and part of 2006.
Against the US dollar, the kiwi has been sliding.
Since October, the kiwi has dropped from US84.9c to US81.7c yesterday, despite a string of robust economic data, including this week's strongest terms of trade outcome in 40 years. Currency strategists said the kiwi's strength versus the aussie reflected the relative strength of the local economy against its middling Australian counterpart, but that it was a different story against the majors.
Analysts put the local currency's decline against the greenback down to US dollar strength as foreign exchange markets became more sensitive to the possibility that the US Federal Reserve would soon start to wind back, or taper, its controversial quantitative easing programme.
"I think the market is voting that tapering is coming very, very soon," said Sam Tuck, senior manager foreign exchange at ANZ New Zealand.
Tuck said it was not just the greenback that was clawing back ground.
The British pound was also showing signs of life, thanks to a pickup in the UK economy.
In the September quarter, the British economy grew by 0.8 per cent, its best performance in more than three years.
The NZ/UK cross rate, which before the global financial crisis was generally confined to a 30p to 40p range, has been shifting lower. The rate today was still high - 50p - but down from 51.90 a month ago.
Likewise, the kiwi has been losing ground against the euro, trading at 60.5c from 61.30c a month ago.
Currency market commentators said the US dollar's strength was a sign that the world's biggest economy was close to turning around.
To that end, this weekend's non-farm jobs data for November could prove pivotal for the direction of the markets.
Market expectations are for a 180,000 increase in US jobs but an improvement of 200,000 would make a strong case for the Federal Reserve to start winding back its fiscal stimulus activities soon, possibly as early as this month.
Harbour Asset Management head of fixed interest Christian Hawkesby said price action in the US currency and 10-year bond markets made it appear likely that the Fed would start to taper within the next few months, partly on the basis of improved economic data.
He agreed this weekend's non-farm payrolls data would be the key.
"The Federal Reserve will want to see concrete signs of jobs growth."