KEY POINTS:
The New Zealand dollar has fallen after the Reserve Bank's interest rate comments last week and a surge in the greenback.
The kiwi closed yesterday at US78.37c, having hit a four-week high of nearly US80.4c on Wednesday.
It fell to a 3 1/2-week low of about US77.8c on
Friday night.
The dollar had been trading at about US79.8c before a cash rate review last week but fell sharply after the Reserve Bank said the OCR would need to stay at its current level "for a time yet".
The language was a change from last month when the Reserve Bank specified a "significant time".
Westpac market strategist Michael Gordon said a rebound in the US currency was also behind the Kiwi's fall.
He said the US dollar had gathered momentum and was likely to continue strengthening in the near term.
"For now, to the market at least, it feels like the worst [of the US economic news] is over," Gordon said.
"I'm extremely sceptical about that."
The exchange rate against the US dollar could continue to come down this week, with a ball-park range of between US77c and the high US78c, Gordon said.
"If you look at the kiwi move in the last couple of days, sure it's off from about US80c to just about US78c at the moment but having said that it's still pretty much the same range that it's been in for the last month." It was probably more useful to examine the exchange rate in terms of the trade weighted index, against currencies including the US and Australian dollars, the pound, euro and yen.
"The [trade weighted index] itself is actually really only at a one-week low," Gordon said. "It's very gradually creeping down but it makes the move so far look less dramatic."
The US dollar had rebounded, driven by growing speculation that the US Federal Reserve would pause in easing rates. "The market at the moment is thinking either one more move or perhaps even none."
However, there was still plenty of bad economic news to come through in the US, Gordon said.
"The economic slowdown, or the evidence of it, is only just starting to come through and I think that will keep the market looking back towards the Fed for more stimulus further down the track."
In New Zealand the latest business confidence survey was due this week.
"I don't think there's been a lot of reason for confidence to improve in the last month," Gordon said.
"While they [Reserve Bank] didn't publish a full set of forecasts I suspect that they're looking at something much worse than the 2 per cent growth rate that they were forecasting in March."
Deutsche Bank foreign exchange strategist John Horner said the most important development during the past couple of days was the broad-based strength in the US dollar associated with a weakening business sentiment in the Eurozone.
The weaker European data had taken away some of the upside for the euro and the downside for the US dollar, he said.
"For this decline to continue we need to see the data in Europe continue to weaken so as to take away the need for the [European Central Bank] to continue to talk hawkishly."
Trading in the kiwi was likely to be more range bound, until there was greater clarity on the Eurozone outlook, he added.
"Although it may continue to underperform on the crosses [such as against the Australian dollar] given the weakening domestic activity data that we continue to see."
Once inflationary pressures eased in New Zealand Deutsche Bank expected the Reserve Bank to cut rates quite rapidly. "That should weigh on the New Zealand dollar toward the late stages of 2008."
