The New Zealand dollar was the worst-performing major currency overnight on speculation lower dairy commodity prices will weigh on economic growth.
The kiwi fell as low 85.45 US cents after rising as high as 87 cents earlier this week. The local currency was at 85.58 cents at 8am in Wellington from 86.02 cents at 5pm yesterday. The trade-weighted index fell to 80 from 80.37 yesterday.
Investors reduced their New Zealand dollar holdings after dairy product prices had the biggest drop in almost 20 months at yesterday's Fonterra Cooperative Group GlobalDairyTrade auction, with whole milk powder falling to its lowest level in more than a year. That marked the fourth straight decline in auction prices and raised concerns about the outlook for New Zealand's 40-year high terms of trade, which are seen as a factor underpinning accelerating economic growth this year.
"Globally the market is focusing on dairy trade," said Sam Tuck, senior foreign exchange strategist at ANZ Bank New Zealand. "It is a clear signal to not only New Zealanders but also the globe that a 40-year high peak in terms of trade can't be considered a one-way bet.
"It was a catalyst for a correction back to where we have been recently, rather than a complete game changer," Tuck said. "The kiwi had got too high, within a cent and a half of its post-float high."
