The New Zealand dollar rose from a 10-month low yesterday and BNZ currency strategist Jason Wong says it will stay at about this level for the rest of the year.
The dollar peaked at US74.85c in early September but that seemed a long time ago now, he said.
Early yesterday, the dollar was trading at US70.88c.
Early last month, the US dollar was under pressure following some soft economic indicators, as investors were still deciding whether the Federal Reserve would deliver a rate hike this year, dairy prices had surged and Donald Trump looked ever more likely to win the US presidential election.
A lot had changed in the past month.
Mr Trump’s chance of winning had evaporated as past skeletons were dug up and following a poor showing in the first presidential debate.
Conviction in the Fed tightening had increased as the Trump risk dissipated, some financial indicators had improved and oil prices had recovered, which lifted inflation and inflation expectations, Mr Wong said.
The European Central Bank unexpectedly did not extend its quantitative easing in September and tapering talk had emerged, helping to reduce the global appetite for risk.
Global dairy prices had retreated and, amid strong domestic data, the Reserve Bank had continued its refrain of further easing will be required.
Some of the fall in the New Zealand dollar was justified, Mr Wong said.
There was a good chance the peak had been seen already, he said.
"As for the outlook, our core view is, and has been, domestic forces are positive for the dollar while global forces represent a headwind. The battle between these two forces will be fought over the next year with the net result expected to be a softening New Zealand dollar trend."
