By ELLEN READ and AGENCIES
The New Zealand dollar has fallen to its lowest closing level this year, giving some relief for exporters.
But bets are still on for the currency to gain in value again.
The kiwi fell more than 1.5c overnight on Wednesday/Thursday against the American dollar, which was boosted by strong economic data.
Last month's US consumer prices rose more than expected, and the trade deficit, which has been one of the biggest weights on the dollar, fell more than expected in February.
These developments have fuelled expectations of interest rate increases.
"It kicked off with that better-than-expected jobs report a couple of weeks ago, and since then the momentum's been building in the market for further pick-up in [US] growth and a raising of interest rates," ANZ Investment Bank senior dealer and technical analyst Mark Elliott said.
"It looks like there's been a bit of disinvestment in the high-yielding currencies and a pull back to the US."
The kiwi reached a low of 63.05USc yesterday, and by 5pm was at 63.7USc - 1c lower than the 5pm Wednesday price and more than 2.5c below its starting level for the week.
The last time the kiwi threatened to drop to 63USc was in November last year.
But dealers do not think the week's action will end the kiwi's strength.
They say the herd mentality is driving the greenback up and it will probably fall again.
"Markets are driven more by sentiment than anything else," Elliott said.
"It's not the numbers themselves, it's trying to guess what everyone else is going to think about the numbers."
He's picking the kiwi to fall to 60USc during the next three months.
"The caveat would be that while the kiwi is below 63.75USc I foresee imminent downside risk perhaps even as deep as 60USc," he said.
"Certainly not directly - perhaps down to 62.5USc, consolidation to 64USc and then down again after that. This move down from 71USc is just a correction within the context of the bigger uptrend which began down around 39USc. That's still in play."
There are also some doubts about the likelihood of an interest rate hike by the American Federal Reserve.
Naomi Fink, senior currency analyst at BNP Paribas, believes the US dollar's strength will not last.
"I think there is quite a large chance of the market overrating the chances of a near-term Fed hike," she said.
She said that because of worries about rising oil prices, the Fed would be reluctant to lift its rate from a 46-year low of 1.0 per cent until the US had several consecutive months of strong jobs growth.
Analysts say Finance Minister Michael Cullen's comments to the Remuera Probus Club that the risks to New Zealand's economic growth forecasts had increased since December because of the strong dollar and slowing immigration were not an influence in yesterday's currency movement.
Traders wary as dollar dives
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