KEY POINTS:
The New Zealand dollar touched a three-week low against the US dollar today and is expected to struggle on the upside ahead of Thursday's Reserve Bank interest rate decision.
Traders said the New Zealand dollar was the worst-performing currency last week and there was heavy selling on Friday night in the wake of soft US employment data.
Investors around the world were again shying away from risky investments.
"The US dollar sold off against everything except the Kiwi and Aussie," said Mark Elliott at ANZ.
"What happened is, as the US dollar sold off against the yen, it pressured the funding leg of the carry trade on the Kiwi/yen cross," he said.
The New Zealand dollar traded as low as US68.26c today from the US68.91c at 8am and US69.16c at 5pm on Friday. It bounced to US68.85c by 5pm.
New Zealand Producer Price Index data today was higher than expected, which indicates inflation pressures, but economists did not alter their expectation that the official cash rate will be held unchanged at 8.25 per cent on Thursday.
The Debt Management Office also moved today to increase the supply of Treasury Bills and will make a decision this week about the next bond tender. The moves help meet the increased demand for government securities as investors shy away from higher risk debt offerings.
Against the yen the Kiwi dollar was at 78.01 yen from 77.92 at 8am and 79.58 at 5pm on Friday. It has fallen on an unwinding of carry trades by speculators.
In the US the first decline in non-farm payrolls in four years raised speculation that the housing slowdown and credit market turmoil were spilling into the broader economy, ANZ said in a commentary.
The US labour market was suddenly looking vulnerable, with the payroll numbers providing justification for a cut in US interest rates next week.
By 5pm today the kiwi was buying A83.77c from A83.39c at 8am, down from A83.66c at 5pm on Friday.
ANZ said the cross was expected to undergo deeper tests of support once profit taking from short NZ dollar position holders was cleared closer to A83c.
Against the euro, the kiwi was buying 0.4997 at 5pm today from 0.5060 at 5pm on Friday.
The trade weighted index was 65.88 from 66.44.
Reuters currency rates:
5pm today 5pm Friday
NZ dlr/US dlr US68.85c US69.16c
NZ dlr/Aust dlr A83.77c A83.66c
NZ dlr/euro 0.4997 0.5060
NZ dlr/yen 78.01 79.58
NZ dlr/stg 33.93p 34.23p
NZ TWI 65.88 66.44
Australian dollar US82.19c US82.71c
Euro/US dollar 1.3779 1.3667
US dollar/yen 113.29 115.10
- NZPA
