Dollar dips below 65USc as US data stokes optimism over world's biggest economy

The New Zealand dollar dipped below 65US cents for the first time in six years as better than expected US data revived optimism about the strength of the world's biggest economy, and stoked expectations the Federal Reserve will start hiking interest rates.

The kiwi fell as low as 64.87USc, and was trading at 65.01c at 8am in Wellington from 65.22c yesterday. The trade-weighted index declined to 69.44 from 69.67 yesterday.

The greenback got a boost from better than expected a US non-manufacturing ISM report showing robust activity in the world's biggest economy. Markets are divided on whether the Fed will start raising interest rates from the near-zero policy it's been running since the global financial crisis, and upbeat data is seen as making a hike more likely. Friday's release of non-farm payrolls for July are the next big indicator for the US economy, and will be closely watched after a private payrolls report came in below expectations.

"Overall, these data are consistent with robust economic activity and a further improvement in labour market conditions," ANZ Bank New Zealand senior economist Sharon Zollner and senior FX strategist Sam Tuck said in a note. "Markets are busy repricing Fed expectations, a process that is supporting USD and sending NZD/USD to a new cycle low."

The kiwi has also been under pressure as slumping global milk prices prompted the Reserve Bank to embark on looser monetary policy in June. This week's latest decline in the GlobalDairyTrade auction caused local economists to downgrade their expectations for Fonterra Cooperative Group's forecast payout to farmers to below $4 per kilogram of milk solids. Fonterra's board will review the price tomorrow, which is sitting at $5.25/kgMS.

The kiwi fell to 59.63 euro cents from 60.03c yesterday after German and Spanish service sectors buoyed Markit's European composite purchasing managers' index. The UK PMI was weaker than expected, though the kiwi declined to 41.6 British pence from 41.96 pence yesterday.

The local currency dropped to 88.39 Australian cents from 88.69c ahead of employment data across the Tasman, which is expected to show a stable unemployment rate at 6%.

The kiwi was little changed at 81.19 yen from 81.15 yen yesterday.

(BusinessDesk)