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Is the kiwi rally getting overripe?

Mark Coote | Bloomberg | Getty Images

New Zealand's dollar has climbed along with the recent bump in Asian currencies, but some analysts see the rally as just another chance to sell.

The New Zealand dollar, also called the kiwi, has climbed this month, fetching around $0.67 in intraday Asian trade Monday, touching its highest levels since July, after trading as low as $0.6251 in September.

"The market might have its rose-tinted glasses on right now, but we wonder how long it can last," National Australia Bank (NAB) said in a note Monday. "We'd be sellers."

NAB expects that while the kiwi may strengthen to fetch as much as $0.67, it's forecasting a fall toward $0.60.

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"After this current squeeze in risk assets loses steam, we feel the balance of risks favor New Zealand dollar downside," it said, citing factors including fading expectations that China's currency will weaken, which had pressured regional counterparts, as well as anticipation that the country's central bank, the Reserve Bank of New Zealand (RBNZ) will cut rates further.

The RBNZ already cut rates in June, July and September, taking the benchmark rate to 2.75 percent. With many developed markets setting their rates at essentially zero, or even in negative territory, that gives New Zealand assets a yield advantage, but with more RBNZ cuts widely expected -- as well as an eventual hike from the Fed -- that just won't last, NAB said.

Across Asia, markets have bounced back from a selloff that sent some regional currencies to their lowest level since the Asian Financial Crisis in the late 1990s. Concerns that the U.S. Federal Reserve would raise interest rates for the first time in nine years spurred a massive outflow of funds from Asian markets, including Australia and New Zealand. But the Fed meeting on September 16-17 surprised markets by leaving rates unchanged and many analysts moved their forecasts for the next hike back into next year. That's helped to push the region's hard-hit currencies up to their highest levels in almost three months.

But NAB is doubtful of how long this will last.

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There are some signs that the kiwi rally may be slowing down. The number of net long futures contracts in the kiwi fell by 9 percent in the week ended October 6, after falling around 11 percent in the previous week, even though the value of the net positioning in the currency actually improved slightly, according to data from ANZ.

To be sure, it's not just positioning on interest rates boosting the kiwi. Prices of dairy products, which account for around a third of the country's exports, had fallen to a 13-year low as recently as August, but there's been some recovery since then.

The Global Dairy Trade price index rose 9.9 percent at the October 7 auction held by New Zealand's dairy cooperative Fonterra; auctions are held every two weeks. But the gains have come on reduced volume.

But analysts aren't convinced that will continue to boost the kiwi.

"We see a further rally in the New Zealand dollar against the U.S. dollar as a selling opportunity as the long-term depreciation trend remains in play," Societe Generale said in a September note, citing expectations of an RBNZ cut.