The New Zealand dollar hit US88 cents for the first time in three years overnight after credit ratings agency Fitch upgraded New Zealand's ratings outlook.
The kiwi broke the US88c barrier twice, peaking at US88.05c about 8.20pm and US88.04c just before 2am, before quickly falling both times. It had returned to US88c just before 2pm.
CMC Markets New Zealand general manager Chris Smith said the brief forays above US88c showed there was still some market resistance at that point, including stop orders and selling that kicked in once that number was reached.
"The market has become comfortable with the dollar above US87c, but it's still nervous above US88c, and at that level you would expect the Reserve Bank to comment," he said.
The dollar's initial surge came after Fitch upgraded New Zealand's ratings outlook from stable to positive, which means the country's sovereign credit rating has a good chance of being increased in the next year or two.
Fitch said the change reflected a strengthening in the resilience of New Zealand's sovereign credit profile through fiscal consolidation, although it noted that vulnerabilities remained because of high net external debt and strong dependence on commodities.
Smith said the dollar had received a boost from the Fitch report as well as positive business confidence figures from Australia that had lifted the currencies on both sides of the Tasman.
He said there was a good chance New Zealand could break through the post-float high of US88.42c achieved in 2011, possibly this month, when the Reserve Bank is widely expected to increase the official cash rate from 3.25 per cent to 3.5 per cent.
The kiwi also rose strongly against most major currencies, including hitting a 14-month high of 64.77c against the euro about 8.20pm yesterday.
The trade-weighted index, which measures the New Zealand dollar against a basket of currencies, hit an all-time high of 81.81 at the same time.
ANZ senior foreign exchange strategist Sam Tuck said the Fitch report was "a trigger rather than a catalyst".
"All the conditions have been in place for kiwi strength for a while," he said.
"The Fitch outlook being increased was more a reflection of existing information."
Tuck said US88c was a psychological barrier, but the dollar had been trading above US87c for the past nine days and was now within a normal day's trading range of the post-float high.
But he said the kiwi was likely to fall against the US dollar in the medium term, and when it did, the fall could be sharp.
"The New Zealand dollar tends to go up the stairs and down the elevator shaft," he said.