The New Zealand dollar hit a 6-1/2 month high of US67.21c against its US counterpart today, but it eased back after worse than expected trade data.
It closed on US66.90c, still higher than yesterday's US66.76c close.
The kiwi remains in demand for its high yield, with the next move in interest rates likely to be up, rather than down.
The August trade deficit came in at $961 million, significantly worse than the $780m economists had forecast.
The monthly shortfall pushed the August year deficit to $6.547 billion, slightly down from $6.735 billion in the July year but again worse than economists' forecasts of $6.4 billion.
Economists believe the kiwi's 10 per cent rise since June against the greenback will further dampen exports and encourage imports. That could push the deficit even higher which in turn could prompt credit rating agencies to downgrade New Zealand's rating. That would finally undermine the currency, they said.
Against the Australian dollar, the kiwi eased to A88.58c from A88.69c yesterday. The trade weighted index rose to 67.04 from 66.78.
ANZ bank today said demand for the NZ dollar remained heavy, based on the currency's yield.
Liquidity issues arose as buyers fought over the available supply. The market would see dips in the wake of the trade data as a buying opportunity, ANZ said.
The NZ dollar cross against the aussie had entered a major resistance zone of A88.80c to A89.20c, with underlying demand and potential mergers and acquisition activity painting a bleak picture for local exporters.
The US dollar slipped as investors stepped cautiously before a blast of US data that will help them gauge the chances of the Federal Reserve's next policy move being a cut in interest rates.
Softer-than-expected data would reinforce expectations that the Fed's tightening cycle is over and that the next move could be a rate cut, though traders said the central bank was in no hurry to change tack.
Reuters currency rates:
5pm today 5.25pm Monday
NZ dlr/US dlr US66.90c US66.76c
NZ dlr/Aust dlr A88.58c A88.69c
NZ dlr/euro 0.5250 0.5211
NZ dlr/yen 78.00 77.65
NZ dlr/stg 35.21p 35.06p
NZ TWI 67.04 66.78
Australian dollar US75.48c US75.23c
Euro/US dollar 1.2750 1.2810
US dollar/yen 116.52 116.35
-NZPA
<i>Currency:</i> Dollar eases back from 6-month high
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