Since early March the kiwi has appreciated 30%, from US50c to US65c, largely on the back of the weakening US dollar, hitting an almost eight-month high.
New Zealand Manufacturers and Exporters Association (NZMEA) chief executive John Walley said the US15c rise in recent weeks could threaten any prospect of an export-led recovery when international markets improved, and has called for tax reforms.
"Exporters are struggling because of a lack of sales and now low margins have also become a problem.
A high dollar at this point is like spraying Roundup on the green shoots of recovery," Mr Walley said in a statement yesterday.
The kiwi passed through US60c in mid-March and in the nine trading days from May 21 to June 3 shot from US60c to US65.52c.
Having gained about US3c over the long weekend, it then plunged US3c overnight on Wednesday.
Yesterday at 5pm, the kiwi was at US62.95c against the greenback.
ASB chief economist Nick Tuffley said while the volatility was likely to continue for the remainder of this year, the bank was forecasting an overall upward trend of US65c-US70c.
"With our current account deficit very high, we need to be exporting more to redress that, with the New Zealand dollar low. Unfortunately, this is what most countries want," Mr Tuffley said yesterday.
There would continue to be a "tug of war" between the kiwi and greenback for the rest of the year, especially as the amount of US government cash being poured into the marketplace was making US investors "edgy", which overall would see the greenback continue to weaken, Mr Tuffley said.
The kiwi weakened against the greenback after weak US economic data and deep stock market losses earlier this week rekindled demand for the greenback as a safe haven, bolstered by comments from Asian officials that Asia would keep buying US Treasury securities even if the US credit rating was cut, NZPA reported.
Mr Walley said the kiwi continued to be fuelled by overseas investors jumping into our higher return, but risky assets - from which they fled back to the greenback in mid-week.
"This spells out the need for the Government to reform the tax system. Another debt-fuelled asset bubble will do more damage to the real economy," Mr Walley said.
Earlier in the week, Treasury secretary John Whitehead said New Zealand's tax system needed major reform to increase international competitiveness, which included consideration of moving the boundaries to tax more capital gains, such as investment property, and shifting more of the tax base towards consumption.
Mr Walley said shifting the tax base to include capital gains and a higher GST rate would allow corporate and personal taxes to be lowered, making conditions more favourable for both firms and workers that chose to do business in New Zealand.
"Taxing capital gains would also take away the tax-advantaged position of land and buildings, reducing the chance of further housing bubbles and promoting further investment in productive activity that creates wealth and jobs," he said .
He said debt continued to flow into the tax free, non-traded parts of New Zealand's economy, with household debt up 0.96%, agriculture debt rising 3.7% from December 2008 to April 2009 and business loans decreasing 2.2% during the same period, he said.
"The absence of a broad-based tax system distorts credit flows as investors chase tax advantages, with devastating consequences for jobs and the real economy," Mr Walley said.
Not only was there a continuing appetite for debt, despite tight international credit markets, but that credit was continuing to flow into assets, rather than economic activity, despite falling asset prices, Mr Walley said.
Mr Tuffley said while the greenback would remain volatile, the kiwi was expected to be "more stable" against the Australian dollar, English pound, yen and euro in the months ahead.
