The New Zealand dollar fell over a cent against the US dollar and nearly two cents against the Australian dollar as doubts surfaced about the sustainability of the kiwi's rise this month.
In a thin market affected by the US holiday, the kiwi initially pushed up to a six month high of US65.80c and then encountered heavy selling that triggered automatic stop losses.
A statement from credit rating agency Standard & Poor's that New Zealand's widening current account deficit was a threat to the country's sovereign rating, although that risk was being offset by the Government's strong fiscal position -- led to further selling.
By 5pm, the kiwi was buying US64.44c from US65.69c at 5pm yesterday, having earlier hit a high of US65.80c.
Against the aussie, the kiwi sank to A83.60c from A85.30c and against yen it dropped to 74.62 from 76.52 while the TWI fell to 64.10 from 65.37.
ANZ bank reported heavy selling of the kiwi, particularly against the Australian dollar and the yen.
ANZ chief dealer Murray Hindley said the kiwi would now encounter resistance at US64.80c and would have initial support at US63.80c.
S&P's Asia-Pacific Sovereign Report Card said the expected weakening in the New Zealand dollar was likely to help reduce the current account deficit.
The report card was not the formal review of New Zealand's rating, which is currently underway, but was a "snapshot", S&P told NZPA.
The annual current account deficit blew out to $14.54 billion - equivalent to 9.3 per cent of gross domestic product.
ANZ said the aussie had received a boost from strong housing and company profits data, while the overbought NZ dollar market was hit with some good-sized selling interest.
The yen rose sharply overnight against the greenback and was also up on the euro after firm capital spending data led to speculation that the Bank of Japan may adopt a slightly more hawkish tone.
The upbeat Japanese data came after a run of disappointing news on inflation and industrial production, which had dampened expectations for Bank of Japan to raise rates from the current 0.25 per cent this year and had sent the yen to record troughs versus the euro.
Rates:
5pm today 5pm yesterday
NZ dlr/US dlr US64.44c US65.69c
NZ dlr/Aust dlr A83.60c A85.30c
NZ dlr/euro 0.5020 0.5106
NZ dlr/yen 74.62 76.52
NZ dlr/stg 34.22p 34.43p
NZ TWI 64.10 65.37
Australian dollar US77.05c US77.00c
Euro/US dollar 1.2837 1.2862
US dollar/yen 115.79 116.49
- NZPA
<i>Currency:</i> Kiwi drops over a cent after S&P comments
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