KEY POINTS:
A fresh bout of risk aversion after US equity markets faltered on Friday and gathering signs that the local economy is cooling rapidly pushed the New Zealand dollar to a 4 1/2-month low of US76.36c yesterday. It recovered slightly to end on US76.52.
The trade weighted index, a composite measure made up of the currencies of our five major trading partners, closed at 68.55, its lowest level since September.
Bank of New Zealand strategist Danica Hampton said the kiwi's weakness was mainly due to last week's softer-than-expected employment data which prompted speculation the Reserve Bank would cut interest rates sooner rather than later.
However, the kiwi faced further selling pressure after sharp losses on US stock markets prompted an increase in risk aversion by investors.
It has now lost almost 6.5 per cent against the US dollar since hitting a fresh post-float high of US81.62c in late February.
While part of the kiwi's recent fall has been due to signs of strength in the greenback, Royal Bank of Canada currency strategist Sue Trinh said: "The New Zealand domestic story's really gaining a fair amount of traction and we can expect to see the extent of kiwi rallies when the US dollar weakens will be somewhat limited.
"Technically, the kiwi just looks absolutely horrible and it looks like it's on track to test the lows down towards that US74c area which we haven't seen since early 2008."
On top of last week's jobs numbers, housing data from Quotable Value showed growth in prices eased to 4.9 per cent in April, with more falls likely. A softer first-quarter retail sales number this week would be likely to add to selling pressure on the kiwi.
"Domestic data is peeling off a lot faster than what we believed the RBNZ had anticipated," said Trinh.
While the markets were now expecting the Reserve Bank to begin cutting official interest rates sooner as a result, Trinh believed markets might be underestimating how aggressive it would be in its approach.
Royal Bank of Canada is forecasting the kiwi to hit US69c by the end of the year.