KEY POINTS:
The New Zealand dollar fell under US73c today as the US dollar staged a mild recovery.
It closed on US72.90c from US73.35c at 5pm yesterday and dealers said if US72.60c broke, stop losses could be triggered and the kiwi could take a decent plunge.
"It still looks weak, particularly as the Australian dollar looks weak as well," said a Wellington dealer.
He said the fall was nothing to do with the budget and related to a rebound in the US dollar plus the fact that high yielding currencies had fallen out of favour for the moment.
The greenback held near a three-month high against the yen overnight after a regional survey showed an unexpectedly large rise in US business activity, backing a view that interest rates will stay on hold for some time.
The strong reading in the Philadelphia Federal Reserve's business activity index for May followed data showing that initial filings for US state unemployment insurance aid fell for the fifth straight week.
Bank of New Zealand currency strategist Danica Hampton said that despite the recent bout of NZ dollar weakness, she found it difficult to get overly bearish on the kiwi for now.
The market's lack of a reaction to yesterday's budget was a bit of an oversight, she said.
Fiscal policy was being engineered to support New Zealand's ongoing economic expansion, Ms Hampton said.
Given that the New Zealand economy was already facing extreme capacity constraints, further fiscal stimulus could not help but put upward pressure on inflation and increase the likelihood of further monetary policy tightening by the Reserve Bank.
Against the Australian dollar the kiwi eased to A88.62c from A88.72c and it lost on other major crosses with the trade weighted index ending on 71.09 from 71.35.
While there was some caution in US dollar trading ahead of the G8 gathering this weekend, traders said the meeting seemed unlikely to produce much that could rattle currency markets, especially since US Treasury Secretary Henry Paulson will be skipping the event.
Reuters currency rates:
5pm today 5pm yesterday
NZ dlr/US dlr US72.90c US73.35c
NZ dlr/Aust dlr A88.62c A88.72c
NZ dlr/euro 0.5406 0.5423
NZ dlr/yen 88.41 88.62
NZ dlr/stg 36.93p 37.07p
NZ TWI 71.09 71.35
Australian dollar US82.21c US82.65c
Euro/US dollar 1.3489 1.3527
US dollar/yen 121.31 120.79
- NZPA