The New Zealand dollar may weaken further over the short term but after a whopping US10c decline so far this year, economists say most of the damage has probably already been done.

At today's level of US64.4c, the kiwi is at its lowest point since early 2016, and just under US10c down from its January level.

US interest rates have risen in line with strengthening US economy while local rates have remained the same, making the Kiwi dollar a far less attractive proposition for international, yield-seeking investors.

Adding fuel to the pullback has been a string of business confidence surveys pointing to an economy coming off the boil and a slight decline in dairy prices.


The US central bank last month raised its federal funds rate by a quarter of a percentage point to a range of 2 per cent to 2.25 - the third such increase this year.

In contrast, the Reserve Bank's equivalent rate sits at a historic low of 1.75 per cent. The bank has left the door open to the next move being a cut.

ANZ senior macro strategist Phil Borkin has a forecast of the Kiwi reaching US62c by the year's end.

If the US Federal Reserve takes on a more hawkish stance, the kiwi had room to fall further, he said.

"The main thing is how emerging markets fare," he said. "That will be key as to whether the New Zealand dollar falls further."

Over the weekend, China's central bank said it would cut the amount of cash that some banks must hold as reserve to lower financing costs and spur growth, injecting a net 750 billion yuan into the banking system.

ASB's broad forecast is that the New Zealand dollar will trade in a US65-70c range through to the end the year and into the next.

"In the short term, there is a risk that it will test lower to to US63.50c mark, ASB chief economist Nick Tuffley said.


Tuffley said the NZ-US interest rate differential was "becoming quite stark".

He said risk aversion, a slowdown in China and strong US inflation, could weaken the New Zealand dollar over the short term.

Mike Shirley at KiwiBank said the market expects US rates to go higher and for New Zealand rates to hold broadly steady.

"The kiwi will probably decline a little further but we are not going to see moves of the magnitude that we have seen over the course of this year," he said.

"Much will depend on how the economic data aligns with what has already been priced in," Shirley said.

Westpac senior economist Michael Gordon said the financial markets had already "baked in" a few more hikes from the Fed.

"It's just a question of whether the central banks will surprise," he said.

Mark Brooks, head of income at NZ Funds, said higher US interest rates meant tighter monetary conditions globally.

"This makes it more difficult for those who require funding – high current account deficit economies and those with debt denominated in US dollars," he said.

"This is why emerging markets have had a challenging 2018," he said.

NZ Funds expects that US dollar will continue to strengthen against other countries over the medium term.

"We are more likely to see US60c against the US dollar before we return to the US74c level seen earlier in 2018," he said.