The New Zealand dollar is heading for a 1.2 per cent weekly fall as higher US interest rates add to the greenback's appeal.
Still, the kiwi could squeeze higher in the short term as local economic data may undermine the Reserve Bank's attempts to keep alive the chance of a rate cut.
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The local currency traded at 66.03 US cents at 5pm in Wellington, down from 66.54 cents yesterday and 66.84 cents last Friday in New York. The trade-weighted index was at 71.78 from 72.02 yesterday.
The widening interest rate differential between the US and New Zealand has weighed on the kiwi dollar. The Federal Reserve lifted rates this week and signalled more to come while New Zealand's central bank doesn't plan to move until 2020 and kept a possible cut on the table.
ANZ Bank New Zealand senior macro strategist Phil Borkin said the central bank is "continuing to cap the upside", noting the bank's threat to cut rates if economic growth fails to fire.
"It is all about the data," he said. If it "looks okay over the next few weeks" then the market may get impatient and start unwinding the expectations built in for RBNZ action, he said.
Borkin pointed to the currency's strong lift on the latest ANZ business outlook showing less pessimism among firms. A net 38.3 per cent of 390 companies surveyed this month expect general business conditions to deteriorate in the coming 12 months.
"The survey was still pretty terrible, but the kiwi bounced quite a bit so it does seem vulnerable to move positive or at least less negative news."
Record short positions in the kiwi - where traders bet an asset will decline so they can buy it back at a cheaper price - means the currency responds quickly if to more upbeat news.
Looking ahead, Borkin said a raft of speeches from Fed officials next week including one from chair Jerome Powell entitled "the outlook for employment and inflation" were likely to be in focus. US jobs data is also out next week.
The kiwi traded at 56.72 euro cents from 56.62 cents yesterday.
It traded at 91.56 Australian cents from 91.63 cents yesterday and fell to 4.5460 Chinese yuan from 4.5721 yuan. It was down at 50.48 British pence from 50.58 pence yesterday and traded at 74.96 yen from 75.01 yen.
New Zealand's two-year swap rate was unchanged at 2.03 per cent while the 10-year swap eased 1 basis points to 2.89 per cent.