The New Zealand dollar dropped to a two-and-a-half year low as investors mull the likelihood of a lower dairy payout when Fonterra Cooperative Group's board reviews its forecast tomorrow, and ahead of the Reserve Bank's final policy review for the year on Thursday.
The kiwi dropped as low as 76.44 US cents, the lowest since June 2012, trading at 76.45 at 5pm in Wellington from 76.99 cents at 8am and 77.07 cents on Friday in New York. The trade-weighted index declined to 77.48 from 78.19 last week.
Fonterra's board is expected to reduce its forecast payout to farmers as a recovery in global dairy prices seems less likely with whole milk powder futures tumbling in the past three weeks. Dairy products are New Zealand's biggest export commodity, and the slowing sector has been weighing on the Reserve Bank's thinking, which will review monetary policy on Thursday. Governor Graeme Wheeler is expected to keep the key rate unchanged at 3.5 percent, while lowering the forecast track of future hikes.
"The kiwi has really underperformed today - the market has woken up and realised we've got Fonterra and the Reserve Bank this week," said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional in Auckland. "The kiwi's broken below it's year low, so there's also some momentum selling."
ASB's Kelleher said the currency has strong support at 75 US cents, and was last at that level in May 2012.
