KEY POINTS:
The New Zealand dollar hit a three-week high yesterday and was poised to rise further after being dragged up by a soaring Aussie dollar and renewed appetite for speculative play among foreign investors.
From yesterday's opening of US70.20c, the kiwi dollar clambered to a high of US70.73c in morning trade, closing at US70.55c.
It has gained 3.3 per cent against the greenback in less than a week.
BNZ currency strategist Danica Hampton said it was squeezed up by demand for high-yielding currencies as investors rebuilt carry trade positions after sharemarket performances improved.
Carry trading is speculative investment in which investors borrow currencies in low-interest markets, such as Japan, to buy in higher-yielding markets such as New Zealand.
"My fundamental view is that the kiwi's expensive here and is a good sell," Hampton said.
"But given what's going on in the global backdrop, with hot money accounts buying, I wouldn't be surprised if we do push up a little bit further and run towards that US71.25c high we saw last month."
Hampton predicted the New Zealand dollar would be back under US70c in two weeks.
Westpac currency strategist Michael Gordon said there was "a very real chance" it could move beyond the high it reached late last month before being sent tumbling by the carry trade slump associated with the world sharemarket shakeout this month.
"There's a renewed focus on the monetary policy outlook here and particularly in Australia where in a matter of days after Reserve Bank of Australia assistant governor Malcolm Edey's speech on Friday, people have gone from expecting no rate increase this year to expecting one as early as April."
The Aussie reached a 10-year high above US80c yesterday because of speculation of an imminent rate rise, a recovery in world stockmarkets and renewed carry trade activity.
"The local markets have piggybacked on that to some extent," said Gordon.
He believed a move by the Aussie to US82c would drag the kiwi over US71c.
Local money markets had now priced in about a 40 per cent chance of the Reserve Bank raising rates again next month and about a 60 per cent chance of an increase by June.
"The risk of another increase here is genuine but the reassessment over the last week hasn't really been backed by a lot of new evidence," said Gordon.
"We've had some minor data and a speech from the governor indicating that he prefers a cautious approach, so that's not really screaming an April move."
But with the renewed focus on local monetary policy, local data releases would assume more importance.
Next week is a big one with GDP, current account, consumer confidence and trade balance figures due.
"We're not predicting the RBNZ to raise rates again but it's pretty finely balanced," Gordon said.
A stronger-than-expected GDP figure or higher-than-expected inflation data in mid-April could tip the scales.
Earl White, of Bancorp Treasury Services, said the kiwi had been trading in a US67c to US71c range for three or four months, and international investors appeared happy to play that range by buying at the lower end and taking profits at the top.
"You'd have to say the risk is that if it's going to have a major move, it's more likely to break on the upside.
"If it does go conclusively above US71c or US72c, it could get very ugly."
With the Aussie above US80c for the first time in 10 years, he said, "you'd have to be a bit nervous about the upside".