KEY POINTS:
The New Zealand dollar fell back from record highs over the week but currency strategists say the rising trend is still intact.
The kiwi hit a fresh 22-year post float high of US$0.7880 midweek but the currency had fallen to US$0.7820 by Saturday.
At current levels, the kiwi
has increased in value by 27 per cent against the US dollar over the past year - a goldmine for overseas investors already benefiting from the highest interest rates in the developed world.
Most of the currency's strength has come from the American dollar's weakness, but the kiwi has also gained in its own right thanks to the high interest rate differential with the rest of the world.
Against the Australian dollar the kiwi has risen by 11 per cent over the past year to just over 91 Australian cents.
ANZ-National Bank senior dealer and technical analyst Mark Elliott has been watching the US Federal Reserves daily trade-weighted dollar index, which has been sitting at historically low levels of about 80.
Elliott said that if the US dollar index fell by much further, it could lead to a major shift downwards in the American dollar, which would translate into another surge in the kiwi.
"You would have to say there would be an exacerbated decline in the US dollar coming if we broke through that sort of level on the index," said Elliott.
He added, "don't rule out anything" when it came down to the longevity of the current rally in the kiwi.
"We have broken over those long-term historical highs on pretty good volume - you would have to say that this is a pretty significant break," said Elliott.
"It may be just the start of a trend that's got some way to go."
The market for New Zealand dollars is shallow compared with the major currencies, which means smaller sums can move the local currency.
Westpac Institutional Bank currency strategist Michael Gordon expected the currency to be in the high 70s against the US dollar by the year's end.
"But along the way, the kiwi dollar is very volatile so it could easily spend some time above 80 US cents over that period," said Gordon.
He said hedge funds had been noticeable buyers of kiwi dollars over the past week or so "at rates that are probably quite difficult to sustain".
He added: "But in early to mid-June they were actually sellers, so to some degree those kinds of customers have actually been playing catch-up with what the exchange rate has done."
Gordon said that all eyes would be on the US dollar to determine whether the rally had much left to run.