Observers of the New Zealand dollar could be excused for doing a double-take on the currency after international and domestic factors combined to drive it US7c higher over the last month.
Much of currency's gain has been put down to US dollar weakness after dithering by the US Federal Reserve about when it will finally start to wind back, or "taper" its US$85 billion ($103 billion)-a-month quantitative easing programme, which has been going for five years at a cost of more than US$2 trillion.
Weaker-than-expected US non-farm payrolls data, which put the August jobless rate at 7.3 per cent, also weighed on the US dollar, putting upward pressure on the kiwi.
Ongoing strength in commodities prices, particularly for New Zealand dairy products, has provided an additional boost but an upbeat assessment of New Zealand's economy this month from the Reserve Bank, plus a firm indication that it will start to raise interest rates next year, has driven the kiwi sharply higher still.
HSBC chief economist Paul Bloxham said the currency was reflecting a strong set of fundamentals. "The bigger part of the story is that the New Zealand dollar is rising because of the fundamentals that affect New Zealand - high commodities prices and an expectation of higher rates further down the track," he said.
The kiwi had already started September on what turned out to be an artificially soft US77.30c on the back of market nervousness about the "risky" currencies after the Indian rupee and the Indonesian rupiah came under stress. Market jitters were compounded when it looked like the United States was about to launch air strikes on Syria.
Over the course of the month, the kiwi went from US77.3c to US84.3c. It traded on Friday at US82.80c. Over the year, it has gone through a US76.84c to US86.80c range.
The real test for the kiwi will be the next US non-farm labour report, due on Saturday (NZT). A strong upside surprise in the American jobs number could see the US dollar reverse some of its September losses, with the kiwi retesting the lower end of the band, according to some foreign exchange strategists.
The market was disappointed that Fed chairman Ben Bernanke did not play his "taper" card, but some believe the US economy and the greenback are not far off re-asserting their primacy on the world stage. While the market has made much of the Fed's decision-making, or lack of it, the telltale US 10-year bond yield has risen from 1.63 per cent in April to 2.66 per cent on Friday - a clear sign that the market is pricing in better times ahead for the world's biggest economy.
Singapore-based Todd Elmer, Citi's head of G10 foreign exchange strategy, expects the greenback to launch a comeback over the next three to six months.
Elmer expects the kiwi to retrace somewhat to around 80c in three or six months, or possibly below that, but for it to fare better than its peers - particularly the Aussie dollar - when the US dollar finally picks up.
"The kiwi is not going to be a big loser if and when US dollar strength reasserts itself," Elmer said.
"The timing of the taper from the Fed may be a bit later than some may have anticipated, but broadly speaking we are going to see divergence between US policy and policy elsewhere, which has potential to attract investment inflow into the United States, particularly if we continue to see outperformance from the US asset markets," he said.
"I think it comes down to the fact that the US cyclical recovery is going to continue to outpace that which we are seeing elsewhere," Elmer said.
"Ultimately, the strength of the New Zealand economy and likelihood of a Reserve Bank tightening going forward means that the kiwi will not bear the full brunt of US dollar appreciation," he said.
Sam Tuck, senior manager FX at ANZ New Zealand, agrees that the US dollar could be on the cusp of a comeback, which would put downward pressure on the kiwi.
"What we have done is just delay the [tapering] theme for a few months rather than get rid of it, and the US bond market suggests that at the moment."