The falling New Zealand dollar will be welcomed by most people: the reasons for the fall are less encouraging.

The New Zealand dollar has fallen from $US0.75 to $US0.70 in three weeks, and looks headed for the mid $US0.60s.

“We needed this fall as part of rebalancing the economy for growth, but the fall is because the global picture doesn’t look too flash,” says ANZ National Bank chief economist Cameron Bagrie.

Part of the reason is what he calls “pygmy trading” - currency investors are headed for the least unattractive currencies, which, because the United States dollar took its punishment earlier, is the greenback at the moment.

Westpac market economist Michael Gordon calls this “the battle of the uglies” and says the greenback “is not gaining on its own merits”.

The Australian dollar has fallen further than the New Zealand currency – meaning New Zealand exporters across the Tasman could see profits squeezed – but this may be short lived.

“The big driver is the global fall in commodity prices: oil, industrials, metals and minerals are the main ones,” Bagrie says.

“But we haven’t really seen it reach us in terms of what commodities New Zealand produces yet.”

The past month has seen, at an international level, signs of a global slowdown, even in those surging emerging economies such as China, India and Brazil; and, locally, confirmation New Zealand has been in a recession for the first half of this year.

But there are silver linings. The fall in oil prices, in particular, is a source of relief for New Zealand. The risk of the fall in the New Zealand dollar leading to a rush of imported inflation, mostly in the form of higher fuel costs, could have put the Reserve Bank in an extremely awkward position as it plans further interest rate cuts.

A downward shift in the New Zealand currency has been long predicted: it was seen as over-valued, given the New Zealand likely economic performance over this year, and the main factor keeping it high was seen as being the “carry trade” of investors in places such as Japan.

The “unwinding” of the carry trade though has yet to take place in any significant numbers.

“The Japanese housewives still seem loaded up to the hilt,” says Bagrie.

The other change this week has been the altered outlook across the ditch. The Reserve Bank of Australia surprised many this week by signalling a shift towards easing interest rates.

“That’s led to a sharp fall in the Aussie dollar,” says Gordon.

“There’s been a significant turnaround in views on the Australian economic outlook – even a month ago the discussion was about their bias towards lifting interest rates, and suddenly they signalled they would probably cut next month.”