Reserve Bank Governor Graeme Wheeler says there is no need to intervene in the dollar at the moment, despite the currency getting close to all time highs.
Mr Wheeler says underpinning the kiwi is a combination of a robust economic recovery, and fears the United States economy is losing momentum and will need ongoing support from the US Federal Reserve.
He says the recovery of America's economy will dictate the dollar's direction, although next year's expected interest rate hikes will slow any fall and provide the much-needed relief exporters desire.
Mr Wheeler says New Zealand has a strong exchange rate, over-inflated house prices in some parts of the country, particularly Auckland, and rising inflation, so the Reserve Bank will need to increase interest rates at some time next year.
He says the bank's forward guidance and monetary policy statement suggests it will raise the official cash rate by about 2%.
Mr Wheeler says whether the bank can delay the increase in interest rates will depend on whether house price inflation can be slowed to transfer the demand pressure that feeds through to consumer price inflation.
He says hopefully, if house price inflation is slowed, the Reserve Bank will not have to raise interest rates by quite so much.
Mr Wheeler says New Zealand has a very high exchange rate which is close to historic highs.
"So increasing interest rates, to some extent it's built into investor portfolios expectations, if you like, or the expectations of investors, but it would put upward pressure on the exchange rate and damage our traded goods sector and we're quite concerned about that risk."
The foreign exchange market is a $US4 trillion a day business, and Mr Wheeler says there is very little the Reserve Bank can do to influence that at the best of times.