Exporters face more pressure after the New Zealand dollar rose against the US on news the Federal Reserve will add to its monetary stimulus programme.
The kiwi increased 0.5 per cent to US84.36c overnight Wednesday, and was trading at US84.39 at about 5pm yesterday, after the US central bank said it would keep spending US$85 billion ($100.6 billion) a month on bond purchases to drive down long-term borrowing costs and stimulate economic growth.
The Fed will spend US$45 billion a month on long-term Treasury purchases to replace a previous bond-purchase programme of an equal size. And it will keep buying US$40 billion a month in mortgage bonds.
ASB head of foreign exchange institutional sales Tim Kelleher said the US dollar had been sold across the board on the back of the Fed's decision to crank up its quantitative easing programme.
"We expected there to be some caution ahead of the fiscal cliff, but there hasn't been," he said.
The "fiscal cliff" - a sharp increase in taxes and spending cuts - will hit the economy next month if Congress and President Barack Obama are unable to reach an agreement this month to avert them.
Kelleher said if there were problems with resolving the "fiscal cliff" there was a risk even more easing could be used.
"It has surprised the market."
The Fed announcement was also the first time the central bank has specified the exact economic conditions it needs to see to maintain its loose policy stance - the unemployment rate above 6.5 per cent and projected inflation below 2.5 per cent.
US unemployment is presently at 7.7 per cent and inflation 2 per cent.
"This approach is superior" to setting a timetable for a possible rate increase, chairman Ben Bernanke said.
"It is more transparent and will allow the markets to respond quickly and promptly to changes" in the Fed's economic outlook.
Bernanke made clear that even after unemployment falls below 6.5 per cent, the Fed might decide that it needs to keep stimulating the economy. Other economic factors will also shape its policy decisions, he said.
"The Fed has become more explicit and more transparent," said Steven Wood, chief economist at Insight Economics.
"This should provide the markets with much more clarity around monetary policy action in the upcoming year."
Before Wednesday, the Fed had said it planned to keep the rate low until at least mid-2015.
Kelleher said being so specific meant an expectation there would be cheap money for some time yet. "It has created problems for countries outside the US. They [the US] are certainly not doing themselves any favours politically." Kelleher said the kiwi had hovered at between US80c and US83c in the past three months but rising through US84c had taken it up a notch.
"It hasn't been this high since February when it hit US84.8c."
The high kiwi dollar will put further pressure on exporters already feeling the pinch this year.
As well as climbing against the US dollar the kiwi also rose 1.4 per cent to 70.24 - its highest level since October 2008.
Kelleher said New Zealand's Reserve Bank was likely to feel political pressure over the kiwi dollar although he doubted they would take any action.
BNZ currency strategist Mike Jones said the strength of the kiwi meant an export-led recovery was "looking pretty shaky".
"It's not really the picture the Reserve Bank wanted to see."
Jones said New Zealand was beginning to see a domestic recovery with housing and retail spending starting to take off but its current account deficit would likely grow next year if the kiwi stayed so high.
But he said there was some upside. "It's a great time to go on an overseas holiday to the US or Europe and it's great for buying Christmas presents online."
New Zealand's dollar has strengthened 6.3 per cent this year, well above a number of developed nations.
The Aussie dollar has gained 0.7 per cent, and the US dollar has fallen 2.9 per cent.