KEY POINTS:
The dollar could surge higher still over Christmas, currency strategists said yesterday as the kiwi climbed to a nine-month high, retracing nearly all the falls of this year.
Playing catch-up with leading currencies including the euro early yesterday, the kiwi made big gains against the weakening greenback to hit US68.23c yesterday morning.
The kiwi has now gained 15 per cent against the greenback since it hit a low of under US60c in late June.
Should the US dollar softness and investor appetite for the high-yielding kiwi dollar continue into the Christmas holiday period when thin trading tends to exaggerate currency movements, the local currency may surge higher.
The kiwi retreated below the US68c mark by midday and closed at US67.83c yesterday.
Jon Clarke of Bancorp Treasury Services said there was anecdotal evidence that exporters had not taken sufficient measures to protect profits against the currency's rise.
Many may have been wrongfooted by forecasts that the kiwi would resume its slide towards the end of the year, said Clarke who also described attempts to forecast movements in currency markets as a mug's game.
Clarke said there was "potential for some exaggerated moves as we go through the New Zealand summer".
"January and February can be extremely volatile in terms of the ranges we see."
Clarke saw little to alter the factors, including US dollar weakness, and interest rate differentials, that had underpinned the kiwi's rise.
In recent days the greenback had been pushed down against most currencies after poor US durable goods data but it has been in retreat against most other leading currencies.
Since last Wednesday, the euro has strengthened by more than 2 per cent against the US dollar taking its gains for the year to around 11 per cent.
Sydney-based Royal Bank of Canada currency strategist Sue Trinh said that against the backdrop of "very negative US dollar sentiment at the moment" the kiwi had been in favour with investors.
Currency markets were tending to ignore positive US data and latch on to negatives at present, and "that in turn suggests that the kiwi may have further to run".
Trinh said the euro's break higher occurred during trade thinned by the US Thanksgiving holiday at the end of last week.
"When you have thin liquidity, moves which would otherwise be small tend to get exacerbated."
