The Reserve Bank is likely to stick to its view the dollar will weaken substantially and keep its official cash rate (OCR) at 2.5% at Thursday's monetary policy announcement.
The strength of the dollar continues to undermine the economic outlook, rising last week as the United States currency took a hammering from investors looking at other so-called investment safe havens.
ASB economist Jane Turner said the Reserve Bank would hold the OCR and hope the exchange rate would depreciate to provide a much-needed boost to a flagging export sector.
"While we have sympathy for the Reserve Bank holding out for a more palatable mix of monetary conditions, we remain wary on the New Zealand dollar outlook.
"Eventually, the Reserve Bank may need to deliver rate cuts to contain OCR expectations and mitigate the impact of the higher New Zealand dollar," she said.
The export sector remained under considerable pressure.
The manufacturing and tourism industries had already experienced a large contraction in activity, struggling to cope with weak international demand.
Dairy also remained a key area of vulnerability.
ASB found it hard to envisage foreign investors suddenly backing off from the New Zealand dollar on account of New Zealand's private sector debt burden at a time when risk appetites were improving and the global economy was lifting out of recession.
Another factor was New Zealand interest rates remained higher than most other countries and the central bank had not had to resort to quantitative easing type measures, Ms Turner said.
New Zealand did have weak fundamentals and some clear external vulnerabilities which were a risk to the dollar but not the dominant driver.
So far, New Zealand had weathered the global recession better than most, she said.
