United States dairy sector protectionism and pre-Budget sovereign credit rating downgrade fears dragged the kiwi from the seven-month high it hit over the weekend, but a number of analysts expect further gains by the local currency in coming weeks.

The New Zealand dollar rose as high as US62.37c on US dollar weakness early on Saturday, a level not seen since October, but closed yesterday at US61.77c.

Westpac markets strategist Imre Speizer said the action in the markets at the end of last week suggested something of a return to "old-fashioned correlations between risk and the US dollar".

"It wasn't big but the fact remains that equities were sold off a bit and so was the US dollar, while risk currencies went up." He said that was a reversal of the pattern seen in recent months where the desire to reduce risk saw investors pull out of high-yielding currencies, such as the kiwi, when US equities were sold off.

"People are thinking maybe things are returning to the way they were as we appear to have bottomed recession-wise."

However early yesterday the kiwi was sold down by about 60 basis points, with Speizer saying the fall was probably related to news the US Government would subsidise some dairy exports.

He said it was difficult to judge what sort of net effect on the currency had resulted from news reports on the prospect of a sovereign credit rating downgrade after this week's Budget.

Although Standard & Poor's sounded a warning over the impact of enduring fiscal deficits, Speizer said this appeared to have been offset by a statement from Prime Minister John Key suggesting the Government felt it had done enough in the Budget to avert any problems.

Westpac put the likelihood of a downgrade after the Budget at slightly less than 50:50.

Westpac is picking the kiwi to trade in a US60c to US63c range this week.

Deutsche Bank currency strategist John Horner, who believed a downgrade was not particularly likely, did not think there would be more of a short-term effect on the kiwi even if one eventuated.

"At the moment the US dollar remains under pressure and that's the dominant aspect of FX markets."

Like Speizer, Horner said the current US dollar weakness reflected more an easing of the risk aversion or flight to safety pattern seen in recent months, rather than anything specifically negative on the US outlook.

"But for the moment, the US dollar downtrend does remain firmly in place and we're likely to see the NZ dollar trade up to US63c sooner rather than later." He said the pound's bounce in short order after last week's downgrade of Britain's credit rating outlook "reminds us that it's the fundamentals that matter more than the credit agencies for the medium-term outlook, so any sort of weakness on a credit agency announcement is likely to be quite short lived in our view".

Derek Rankin of Rankin Treasury Advisory said this week's Budget and potential credit rating downgrade were still a factor, albeit a background one for the kiwi.

"The US dollar should see a correction and that will bring some NZ dollar weakness, but it will not last long. Once the Budget and the threat of a credit downgrade have passed, there will be little to hold the NZ dollar back, with the next target US65c en route to the US70c area by year end."