The New Zealand dollar dropped below 85 US cents for the first time in seven weeks after Fonterra Cooperative Group cut its forecast payout to dairy farmers and a stronger US currency saw the kiwi lose some of its allure.
The kiwi fell as low as 84.90 US cents overnight and was trading at 84.96 cents at 8am in Wellington, from 85.15 cents at 5pm yesterday. The trade-weighted index fell to 79.40 from 79.52
The New Zealand dollar underperformed other major currencies overnight amid broad US dollar strength, with the greenback holding close to this year's high against a basket of currencies. Optimism is building about a recovery in the world's largest economy ahead of major data and policy announcements this week starting with tonight's Federal Reserve meeting and second-quarter GDP data and private payrolls report. The kiwi has fallen half a cent since yesterday morning in the lead-up to Fonterra's announcement it would cut the 2015 forecast payout to $6 per kilogram of milk solids from a previous forecast of $7/kgMS and from a record $8.40 /kgMS in 2014.
"It was a night of broader based US dollar strength," said Bank of New Zealand currency strategist Raiko Shareef. "The New Zealand dollar was the major underperformer and that can broadly be attributed to the Fonterra news yesterday. That continues the pressure that has been building on kiwi for essentially all of July."
The local currency has declined 3.1 percent so far this month amid weaker-than-expected inflation and commodity prices and following Reserve Bank hints it may intervene to pull down the kiwi after signalling a pause in its hiking cycle.
"We have had a series of quite sharp setbacks for the kiwi, all fundamentally bringing it back in line with where it really should be," said the BNZ's Shareef. "The pressure is still lower."
Traders will now be looking for direction from the US, starting with tonight's key releases and ending the week with a key payrolls report on Friday. The kiwi may head down towards 84 US cents should the US announcements exceed expectations, Shareef said.
Today, New Zealand data is released on June building consents.
The kiwi slipped to 90.52 Australian cents from 90.62 cents yesterday, weakened to 63.36 euro cents from 63.40 cents, was little changed at 50.15 British pence from 50.17 pence and declined to 86.75 yen from 86.84 yen.
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