The Kiwi dollar traded above US77 cents during the weekend, but the global backdrop for the dollar is as "good as it gets" and Deutsche Bank is expecting the dollar to fall sharply to US68c by the end of the year.
Another forecaster, Infometrics, is picking the economy to cool and higher interest rates and lower migration to trip up the housing market, which is expected to drop 3 per cent in the year to March 2009.
The New Zealand dollar was trading just under US77c late on Friday, after official figures showing March quarter economic growth of 1 per cent, with some economists expecting a much slower run in the second half of the year.
The dollar traded slightly above US77c yesterday, still around a 22-year high, and a vast leap above the 10-year average of US56c.
The Kiwi, like many currencies, is also extremely strong against the Japanese yen, trading about 95 yen, compared with a decade average of just 66 yen.
Deutsche Bank is forecasting the dollar will drop back to US72c in September and down to US68c by the end of the year.
It would also ease against the Australian dollar, but less dramatically, down from about A91c now to A87c by the end of the year.
Deutsche Bank's latest foreign exchange forecasts significantly lifted its earlier forecasts for the NZ dollar- US dollar rate, because of the strong terms of trade boost from higher world dairy prices and greater government spending.
Both factors had reduced the prospect of a "substantial slowing" in the New Zealand economy, Deutsche Bank said.
While world prices for commodities such as dairy products were high, Deutsche Bank was sceptical they could push the New Zealand dollar much higher.
The New Zealand dollar was already more than 20 per cent over-valued on a purchasing power parity basis.
"We still expect the New Zealand dollar to decline from current levels," Deutsche Bank said, pointing to the impact of recent increases in interest rates in New Zealand.
There were already early signs that higher interest rates were starting to hurt the housing market, and consumer confidence was also down, with the Westpac bank's latest survey last week showing a six-point drop in the index at 111, a 12-month low.
The global economy was strong, but "as good as it gets", so the backdrop for the Kiwi dollar was likely to be "modestly less favourable" in the future, the bank said, but it was not expecting a global hard landing.
Interest rates are likely to go higher in Europe and Japan and that would probably make investors less willing to take risks on high interest rate currencies, such as the Kiwi dollar.
Meanwhile, Wellington-based economic forecaster Infometrics said in its latest forecasts that the strong start to growth in 2007 would fade in coming months, with growth of 1.9 per cent in the year to March 2008.