KEY POINTS:
Despite the economy listing dangerously under the weight of what many in this country regard as an overvalued currency, overseas investors are continuing to view the kiwi dollar as an attractive buy.
They figure the risk that it will fall in the future is more than offset by its world-leading yield.
The dollar hit another post-float high yesterday, just a few weeks after retreating from a previous 22-year peak in April.
Breaking through the US75c barrier to close at US75.45c yesterday, it may have further still to rise and beyond that, its descent may be gentler and shallower than seen after previous peaks.
International investors have bid the kiwi even higher in recent sessions on expectations the Reserve Bank will raise the official cash rate to 8 per cent either today or a few weeks down the track, which will further increase the currency's appeal to international investors.
ANZ head of markets John Body says pricing on money markets suggests investors believe interest rates are going to stay relatively high for quite some time, years in fact, which makes it a very attractive prospect for investors in countries such as Japan where the official interest rate is a mere 0.5 per cent.
"It's a pretty compelling case if you're a Japanese fund manager to be buying kiwi and selling yen and just lock in for five years."
With the kiwi currently trading at close to 91 yen and every indication an investment in New Zealand dollars could earn an average yield of 7 per cent over that period, the potential to lose out in a big move lower by the kiwi dollar was relatively small.
"You could probably afford for it to fall to 65 yen before you really start to worry about it."
The reduced potential for a swift move lower by the New Zealand dollar sets the current cycle apart from previous episodes of strength, says market veteran Body.
On the basis of what's gone before, the kiwi dollar could be expected to peak quite quickly around these levels or even a cent or two higher before making a rapid descent as the economy responded to high interest rates. But it has so far proved very resilient to everything the RBNZ has thrown at it.
One of the factors underpinning that resilience has been the performance of key commodity prices such as dairy.
Fonterra's increased farmer payout and its potentially stimulatory effect on the economy has been a central factor in convincing the market the Reserve Bank will lift the official cash rate.
The support from commodity prices may prove quite durable too. ANZ National Bank chief executive Graham Hodges recently said New Zealand stood to benefit from a boom in "soft commodities" such as dairy, following on from the boom in hard commodities such as coal and iron ore which underpinned Australia's recent economic growth.
Of course another big factor in the kiwi's strength against the US dollar is the greenback's weakness.
As that weakness continues while markets overlook any positive US data and New Zealand's interest rates still rise "it's hard to call a top in the kiwi". says Westpac currency strategist Michael Gordon.
He says that whether the rates rise or not the dollar is likely to be trading at these levels for some time. Predictions of a US70c kiwi by year's end are being revised.
The growing consensus is that any indication of an easing bias from the Reserve Bank that will force the kiwi dollar lower won't be until some time next year.
Body says: "Exporters who would have thought a US65c kiwi was expensive are now thinking that would be a dream."
