NZ dollar declines as US dollar advances on optimism

File photo / NZ Herald

The New Zealand dollar fell to its lowest in more than six months as the US dollar gained strength on optimism about a US economic recovery which will push interest rates higher.

The kiwi dropped as low as 82.58 US cents, its lowest level since Feb. 20, and was trading at 82.77 cents at 8am in Wellington, from 83.16 cents at 5pm yesterday. The trade-weighted index slipped to 78.99 from 79.02 yesterday.

The US dollar index, which measures the greenback against a basket of currencies, touched a fresh 14-month high. The US dollar has been gaining as optimism grows about a revival in the world's largest economy. Traders noted a San Francisco Federal Reserve research report shows investors are pricing in more accommodative policy than the Federal Reserve itself suggested in June.

"The New Zealand dollar fell in line with its peers against the US dollar overnight," Raiko Shareef, currency strategist at Bank of New Zealand, said in a note. "We do not put much weight on the idea that this particular note sparked fresh interest in the US dollar. Rather, it simply played with the grain of an existing bias."

The kiwi has support today at 82.60 US cents and is unlikely to break through 83.50 cents, the BNZ's Shareef said.

Investors have looked through weaker than expected US jobs data released on Friday, and continue to expect the Fed to pull back its monetary stimulus, Kathy Lien, managing director of foreign exchange strategy at BK Asset Management in New York, said in a note.

"It was supposed to be a quiet day in the financial markets and it was if you were watching equities and Treasuries but volatility in the foreign exchange market exploded as investors piled into the US dollar," Lien said. "There was an insatiable appetite for the greenback. After Friday's surprisingly weak non-farm payrolls report, this strength may have caught some investors off guard. Friday's non-farm payrolls report will not deter the Federal Reserve from ending asset purchases in October."

In New Zealand today, data is released on electronic card spending for August at 10:45am.

The New Zealand dollar touched 51.63 British pence, its highest level since June 26, as sterling weakened on concern Scotland may vote to separate from the rest of the UK in a referendum this month. The local currency was trading at 51.38 British pence at 8am from 51.30 pence at 5pm yesterday.

The kiwi touched 87.77 yen, its highest since July 24, after a report showed Japan's economy shrank more than expected in the second quarter. The revised gross domestic product data showed Japan's economy shrank an annualised 7.1 percent from the previous quarter, compared with an earlier estimate of a 6.8 percent contraction. That is the biggest contraction since the first quarter of 2009 and is weaker than the 7 percent expected in a Reuters poll of economists. The kiwi was trading at 87.69 yen at 8am from 87.38 yen at 5pm yesterday.

The local currency advanced to 89.16 Australian cents from 88.76 cents yesterday ahead of today's release of the NAB business confidence survey and home loan data for July. The kiwi slipped to 64.16 euro cents from 64.26 cents yesterday.