The New Zealand dollar is likely to fall to at least US62c in value by the end of the year with the main drivers being tighter monetary policy from the Federal Reserve, an easing Reserve Bank and weak commodity prices.
Westpac currency strategist Imre Speizer said yesterday the Fed's looming tightening cycle would probably be the main contributor to a softer New Zealand dollar.
Also contributing to the bearish case would be the Reserve Bank's easing bias which was expected to persist for some time, he said.
Most market commentators now expect the Reserve Bank to cut its official cash rate to 2.5% on December 10 and Australian commentators expect the Reserve Bank of Australia to go below 2% at some stage.
The Fed has not raised its interest rates from near zero for nine years.
Mr Speizer said Westpac still expected the New Zealand Reserve Bank to cut its OCR to 2% at some stage.
BNZ chief economist Tony Alexander said in his weekly overview the currency was pressed down this week by two factors.
The terrorist attacks in Paris prompted a wave of risk aversion among investors as they cut back positions in ''far flung'' currencies such as the New Zealand dollar.
Secondly, the further 7.9% fall in average dairy prices at Tuesday's GlobalDairyTrade auction affected the dollar.
Dairy prices on the auction had fallen by 17% since early October and sat 56% down from the early 2013 peak.
There was likely to be expenditure restraint in the dairy and dairy support sectors, capping growth in the New Zealand economy, but there were plenty of other factors which would underpin economic growth near 2%.
They included construction, migration, low borrowing costs, non-dairy exports and services sector growth, Mr Alexander said.
''It still seems unreasonable to expect the kiwi will undergo further substantial decline from current levels. Exporters and people with funds offshore which they wish to convert into New Zealand dollars might be advised to take advantage of these occasional downward spurts in our currency to purchase some kiwi dollars. Importers, and those with timing flexibility wanting to shift funds offshore, might be advised to simply wait for the next inevitable blip.''
However, it was highly likely there would be increased currency volatility over the coming year, he said. US monetary policy was set to be tightened for the first time since 2006.
Not only was a nine-year gap a long period of time over which links between key variables could have altered, all such links had been blown asunder by the global financial crisis.
No-one had any strong idea of what would happen with the US housing market, business investment, employment, confidence, share prices, retail spending and currency as US monetary policy tightened, Mr Alexander said.
Debate regarding the impact of rising US rates would be huge, fluctuations in interest rates might be highly frequent and cause gyrations in the US dollar's relationship with other currencies.
One key factor helped the kiwi falling further this week - the stronger-than-expected retail trade numbers released on Monday.
The strong rebound in consumer confidence reported last week suggested continued good consumer spending growth in the next six to nine months, he said.
