The New Zealand Dollar (NZD) continues to perform well, no doubt helped by a federal interest rate of 6.75%, which is currently the highest in the developed world. Investors in search of (relatively) risk- free returns have entered New Zealand en masse, sending the NZD to higher levels. This has occurred in spite of New Zealand’s lackluster economy, which is expected to grow by only 2% annually over the next couple of years. However, as US interest rates rise, the US-New Zealand interest rate differential, which in the past has been a source of NZD strength, narrows proportionately. This trend, combined with the prospect of falling rates in New Zealand, has led currency strategists to reevaluate their expectations for the NZD. Bloomberg news reports:

“With a declining yield spread against the U.S. we continue to favor selling rallies in the New Zealand dollar,” said a currency strategist at Bank of New Zealand.

Read More: N.Z. Dollar May Fall on Speculation Yield Advantage Will Narrow