The New Zealand dollar — or the Kiwi as it is commonly known — fell around 2.5 percent from Monday from highs of around $0.81 to a low of $0.79 on Wednesday after the country's central bank announced curbs to its frothy property sector.
Sentiment on the Kiwi has turned more bullish in recent months after its central bank indicated that it was looking to hike interest rates from the current level of 2.5 percent, making it the first in the developed world to start tightening monetary policy.
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Analysts told CNBC this week's decline was a blip and was unlikely to deter the Kiwi's expected strength this year.
"The Reserve Bank of New Zealand's measures this week provided a reason to sell," said Sean Callow, senior currency strategist at Westpac. "They were seen as an indication that the bank prefers macro-prudential measures rather than raising interest rates. This led traders to reassess when this might happen," he said.
The RBNZ on Tuesday moved to rein in its frothy housing market by introducing long-term limits on low deposit, high value house loans. The new regulations will kick in from October, and banks will not be able to lend out more than 10 percent of their total new house lending on mortgages exceeding 80 percent of the value of the property.
However, despite the short-term selloff, Westpac's Callow said he expected the Kiwi to hit $0.80 in the next three to six months and $0.82 by year end, but said it would likely experience volatility before then.
"The Kiwi should remain strong on a range of crosses, because New Zealand's domestic situation remains strong, and it is not vulnerable to other external factors in the external environment. For instance it is benefiting from reconstruction following the earthquake (which occurred in February 2011)," he said.
Analysts at the National Bank of Australia also said the recent movements in the Kiwi have done little to change their view.
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"We've long held the view that economic, interest rate, and commodity price fundamentals will remain skewed in favor of NZD/USD strength this year. As economic data have remained upbeat, and the RBNZ has started to sound hawkish, the market has increasingly come around to our view," read a note from NAB, adding that they expect the RBNZ to hike interest rates by 125 basis points over the next two years.
However, the analysts said continued strength in the U.S. dollar combined with the fact that New Zealand's economic story is largely priced in were likely to keep the cross pair trading sideways for the rest of the year. NAB's forecast remains $0.78 by year-end.
— By CNBC's Katie Holliday: Follow her on Twitter