After soaring by US10c since January the New Zealand dollar looks set to keep rising.
The kiwi has rallied by US1.85c this week alone, making it one of the world's strongest performing currencies, helped along by the third significant gain in dairy prices at the GlobalDairyTrade auction on Wednesday.
A string of poorer-than-than expected data releases from the US has undermined the greenback, reinforcing kiwi's status as a high-yielding currency in a world where official interest rates are at near zero or in the low negatives.
The release of data on Tuesday that showed activity in the US services sector had hit a six-and-a-half-year low added weight to the argument that the US Federal Reserve would defer rate hikes until later in the year. ANZ said NZ dollar strength and US dollar weakness was driving the kiwi higher.
"The NZ dollar end is well understood. The economy is accelerating, our interest rates look fabulous for investors in a relative comparison, and our commodity prices are recovering," ANZ said in a commentary.
"But the broad path of the USdollar is clearly important, too," it said, adding latest numbers out of the US meant the chances of an imminent rate hike were evaporating.
The Reserve Bank of NZ is expected to cut its official cash rate, currently at 2 per cent, later this year but if past experience is anything to go by, any currency weakness on the the back of that looks likely to be fleeting, said Westpac senior market strategist Imre Speizer.
The kiwi was trading at US74.65 yesterday, having started the week around US72.80c. That's good for those travelling overseas or buying overseas goods, but bad for exporters as they repatriate sale proceeds.
The kiwi has also been strong on the Aussie cross rate, trading yesterday at A97c. The BNZ has projected that the kiwi will be at parity with the Aussie in mid-2018.
Westpac's Speizer said two factors had underpinned the kiwi in the past six months: a weak US dollar and global capital flows chasing yield. A 35 per cent increase in whole milk powder prices since July has added fuel to the rally.
The currency's relative attraction to overseas investors continues to be borne out by official data from the Reserve Bank. The bank's latest release for April showed the kiwi was the world's 11th most traded currency, with an average daily turnover of US$105 billion.
"New Zealand has for quite a few months stuck out relative to others with its real yield advantage, and so flows keep pouring into the New Zealand dollar," Speizer said.
Only a sharp decline in dairy prices would stall the rally, he said.
"Until then, the market is going to trade with the idea that the rest of the economy is pretty solid and that now that we have this last piece of the puzzle - dairy prices - come to the party."
Looking ahead, next Thursday's gross domestic product data, which is expected to show the economy grew by a hefty 3.5 per cent in the year to June, would add more weight to the currency's gains. "This trend has more legs to it and I can see it running potentially to US78c within a month from now," Speizer said.
However, he said, that could all be changed by a rate hike by the Fed.