KEY POINTS:
The New Zealand dollar hit a new post-float high overnight, cresting the key US75c level for the first time in a quarter of a century.
Around 7.45pm, the kiwi was buying US75.31c, above the previous post-float high of US74.93c hit in mid-April on the back of figures showing persistently high domestic inflation.
This morning, the dollar had come back slightly, to be trading at US74.87c.
The NZ currency was floated 22 years ago in March 1985 at a level of US44.4c.
Yesterday's level is the kiwi's highest in 25 years, with the NZ dollar last above US75c when this country ran a so-called crawling peg currency.
The dollar looked set to move even higher as markets were unaffected by a bout of Chinese sharemarket wobbles, giving investors the green light to continue chasing high-yielding currencies.
The kiwi also received a leg up from the market's increasing view that the Reserve Bank will increase interest rates, perhaps as soon as this week.
The kiwi also hit a fresh 17-year high against Japan's yen and a 15-month high against the euro.
Deutsche Bank currency strategist John Horner said the primary driver of the kiwi gains had been the return to favour of "carry trades" and their resilience in the face of another sell-off in China's equity markets.
Carry trades consist of borrowing currencies, mainly the yen, at dirt-cheap interest rates in order to buy higher-yielding assets in other countries. New Zealand's particularly high interest rates make its currency a favoured investment.
A sell-off in China's sharemarket in February which spread to equity markets throughout the world saw those carry trades rapidly unwind and the kiwi sold off accordingly.
Since then carry trade positions have been rebuilt, and yesterday market participants brushed off a more than 5 per cent fall in Shanghai equities, which followed a tumble of over 8 per cent on Monday. Traders said the losses were not enough to spur a repeat of February's sell-off.
"This time, the impact has been very much contained," said Horner.
"The resilience of risky assets has been taken as a very positive signal by currency markets.
"If we were to see signs of contagion from the weakness in China into other asset markets then that would suggest some downside risk into the New Zealand dollar but at this point we're not seeing that."
Horner said the kiwi was also benefiting from increasing chances of a RBNZ rate increase on Thursday.
Deutsche Bank didn't believe that was likely but Horner did anticipate an accompanying statement which warned a further increase might be required soon.
Royal Bank of Canada currency strategist Sue Trinh said rising prospects of a rate rise this week or in coming months was the principal driver of the kiwi's recent gains.
She believed it could hit US76c this week if the RBNZ did lift the rate.
Trinh agreed with Horner that the way other equity markets had so far shrugged off the weakness in China's sharemarket had given the green light to further carry-trade activity.
Horner said Deutsche Bank believed the kiwi would likely hit a near term peak of US75c, "before it weakens in the second half of the year as the monetary tightening that has been put in place starts to result in weaker economic activity".
