It might be surprising to most who were bears against the NZD, seeing the lousy outlook on the NZ economy and the consistent reduction in interest rates over the past few months, but the kiwi had staged a surprise rally over the past 2 weeks, with gains of over 7% against SGD. Good or not, I very much doubt this will last, though for it to go back to 0.78 appears difficult to me, as there is a change in dynamics since the carry trade with JPY has continued.
Carry trade in simple terms is like arbitrage, where the 0% interest rate policy in Japan calls for people to borrow JPY to buy NZD based securities with higher interest rates, and earn on the interest rate differential. The only things that forced them out of the market was the decreasing interest rats, and once the interest rates stops falling, if its still lucrative, some will return. I mean, come on!!!how many governments can collapse just like that? Not impossible, just unlikely.
The economic data coming out soon will probably be ugly, and drive some folks away from the carry trade, but I doubt that there will be a fundamental change in the mindset of the current folks. The thing that will impact the strength of the NZD will be risk adversion, which is usually just noise as compared to change in dynamics. Hence, in the short term, regardless what people say, its my opinion that the price of NZD shall drop, but remain trading within 5% of the current 0.87.