By ELLEN READ and AGENCIES
The New Zealand dollar has broken the US46c mark this week for the first time in two years, leading to forecasts of even higher levels by the end of the year.
The kiwi - which hit a high of US46.17c on Thursday night - is continuing its run as the world's best-performing "developed" currency this year, having gained more than 10 per cent against the US dollar.
At 5pm yesterday the currency was trading at US46.03c.
Driving the kiwi higher is New Zealand's high interest-rate regime and the outlook for higher rates yet.
The Reserve Bank has lifted interest rates three times in two months and acting governor Rod Carr made it clear that higher rates were ahead.
On Wednesday, at the central bank's quarterly review, he raised the official cash rate to 5.5 per cent, and said 6.5-6.75 per cent was likely by the middle of next year.
Westpac Institutional Bank's chief foreign-exchange dealer in New Zealand, Basil Payn, said investors were interested in interest yields because the outlook for world share markets was so dull.
"The interest-rate differentials are putting a really solid base under the kiwi. More and more people are looking at the attractiveness of the yield - that's really underpinning it and could be a very significant factor."
First NZ Capital economist Jason Wong predicted that two main factors would influence the New Zealand dollar.
The first was a perceived over-valuation of the US dollar, and a correction could affect the kiwi for a number of years, he said.
"The second is cyclical in nature, reflecting the global economic cycle. This is where the kiwi is more vulnerable, as expectations of global industrial production growth should moderate soon.
"In terms of local factors, the significant short rate differential between NZ and the US looks like it will continue to be positive for the NZ dollar.
"We are increasing our year-end target from US47c to US49c. Since setting that target late last year, growth in New Zealand has surprised on the high side and the monetary policy outlook has firmed considerably."
The kiwi was at an eight-month high against the aussie of A84c, a 33-month high of 59.06, a two-year high of E50.5c and a two-year high of 31.62p against the British pound.
Not surprisingly, the trade-weighted index, which measures the kiwi against a basket of New Zealand's main trading partners, was also at a two-year high of 54.46 - a 7 per cent gain for the year.
On Thursday the Australian dollar moved above US55c for the first time since February last year. The move proved temporary, but solid support is seen around US54.8c.
Rising interest rates drive dollar's climb
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