KEY POINTS:
The New Zealand dollar touched a fresh 10 1/2 month low against the US currency yesterday as the kiwi increasingly fell out of favour with investors.
At 8am yesterday, the kiwi was buying US71.81c, having been down near US71.70c after falling from US72.65c overnight Wednesday. It rallied briefly yesterday afternoon following stronger than expected employment data, but ended the day not far from where it started, at US71.80c.
It also eased against the euro, moving to a six-year low near 0.4650 euros. Against the Australian dollar, the kiwi was little changed at A78.85c, but it firmed against the yen to 78.68c.
Deutsche Bank foreign exchange strategist John Horner said the kiwi had been under downward pressure over recent days, partially over concern that employment figures might have been worse than they actually turned out to be.
He said it was becoming a less viable environment for the New Zealand dollar with the continuing expectation of an easing in interest rates, and global commodity prices under some pressure.
He expects the kiwi to fall as far as US67c by the year's end, and into the mid-60c mark in 12 months.
"The key risk to that outlook is if we were to see renewed weakness in the US dollar. Our central case is that the US dollar will strengthen over the next 12 months."
But Horner said even if the ongoing turmoil in the US financial sector saw continued weakness in the greenback, the kiwi was still expected to weaken considerably against other currencies.
Leo Krippner, head of investment strategy at AMP Capital Investors, said with the Reserve Bank likely to ease interest rates, the kiwi was less in favour with investors now.
It was targeting a rate of between US60c and US65c over the next year.
"It certainly might take a while to get there, but we've long been bearish on the New Zealand dollar because at its peak, it was about 20 per cent overvalued. We'd say now it's probably still about 15 per cent overvalued."
