Speculators will have to pay a high price to move on from the New Zealand dollar, an analyst says.
The Kiwi has fallen more than one US cent in volatile trading since Tuesday evening, finishing Wednesday at 86.96 US cents, but the plunge might have been deeper if not for continuning high interest rates, relative to major economies.
Bancorp Treasury Services senior client advisor Peter Cavanaugh said as long as the Reserve Bank maintained its current stance on interest rates, speculators would continue to hold their positions.
"The New Zealand dollar has a tremendous yield advantage over the major currencies and our nearest neighbour, Australia, and those wishing to speculate that the New Zealand dollar is going down, if they haven't got a position here to unwind, then they're creating a new position, which means they have to borrow in New Zealand dollars to sell on the exchange rate market," Mr Cavanaugh said.
"That's a very expensive process at the moment, so it's a case of the speculators and those people that can move currencies very quickly being reluctant to jump into fresh waters because the temperature is fairly cold in those waters and if they get it wrong, it can be very expensive, even if the currency goes nowhere."
That meant the continued high interest rates were one of the factors keeping the New Zealand dollar from falling further.
"The attraction of high interest rates in an environment where every central bank is saying 'we're going to keep interest rates where they are', which is close to zero ... we have a central bank here that is putting up our interest rates and is just basically shrugging its shoulders and saying 'we accept the currency is where it is'," Mr Cavanaugh said.