The rout in the New Zealand dollar appears to be over, for the moment at least.

On its Trade Weighted Index (TWI), the Kiwi has fallen as much in the last three months as it has gained in the last three years.

Now, despite ructions on the world stage - China and Greece - some semblance of stability has returned to the Kiwi.

By late Friday afternoon the currency was at US67.63c - after setting a fresh five-year low of US66.19c earlier in the week.


The TWI, which measures the currency against those of New Zealand's main trading partners was at 71.2, down 13 per cent from this time last year.

Sam Tuck, ANZ Bank senior foreign exchange strategist, said relative calm had returned to the market after the news that the Greek government had submitted economic reform proposals to try to secure another bailout from its creditors.

According to Greek media, the measures included tax rises, pension reforms, privatisation and spending cuts.

Tentative signs of stability were also emerging for Chinese share markets and the Chinese government is expected to unveil measures to support its share markets this weekend.

"We are in a bit of a holding pattern," Tuck said. "Obviously this could change dramatically over the weekend."

Weak dairy prices and the Reserve Bank's surprise rate cut on June 11 have accelerated the Kiwi's decline.

The big commercial banks have re-adjusted their interest rate expectations downward, and most expect to see two more by the year's end.

The bearish outlook put forward by the Reserve Bank has since been backed by still weaker dairy prices, a meagre 0.2 per cent increase in GDP growth in the first quarter, and declines in business and consumer confidence.


Interest rate differentials play a big part in foreign exchange movements and the Kiwi - which has traditionally outshone most currencies as a high yielder - is quickly losing its flavour.

The currency come a long way down in a short space of time.

In April - the currency was a close to equalling the Australian dollar in value.

Today it is still high at A90.3c but well short of parity.

The cross rate remains elevated because the Aussie dollar is itself under pressure from sharply lower iron ore prices.

At current levels, the Kiwi is now 23.5 per cent lower that last year, when it came close to setting a new post float high against the US dollar at US88.38c.

While the Kiwi may have won a temporary reprieve from selling, risk aversion remains the order of the day.

Bank of New Zealand currency strategist Raiko Shareef said the currency's freefall had to be arrested at some point, but that this week's price action did not constitute a bounce.

"One of the rules that you think of in the currency market is that things don't go one way forever," he said.

"You generally have a retracement or a bounce at some point after a pretty substantial move."

Market positioning, as measured by the independent US agency, the Commodity Futures Trading Commission, suggested the market was extremely short kiwi.

"I don't think the conditions are right for a squeeze higher," Shareef said.

"And we still think that the medium term trend is down."