NZ dollar dips below US65c

The kiwi touched a high of 66.73 US cents over the weekend, and was trading at 65.88 cents at 8am in Wellington, from 65.82 cents at the New York close and 65.87 cents at 5pm on Friday. Photo: NZ Herald.

The New Zealand dollar dipped below 65 US 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 64.87 US cents, and was trading at 65.01 cents at 8am in Wellington from 65.22 cents yesterday. The trade-weighted index declined to 69.44 from 69.67 yesterday.

The greenback got a boost from better than expected 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 re-pricing 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, and this week's latest decline 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 on Friday, which is sitting at $5.25/kgMS.

The kiwi fell to 59.63 euro cents from 60.03 cents 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 decline dot 41.6 British pence from 41.96 pence yesterday.

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

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