NZ dollar falls to two-month low after fiscal update shows weaker growth

The kiwi dollar traded at 73.54 US cents as at 8am in Wellington. Photo / 123RF

The New Zealand dollar fell, touching a two-month low, after the pre-election fiscal showed weaker economic growth and smaller Budget surpluses.

The kiwi declined to 72.25 US cents as at 8am in Wellington and earlier dropped as low as 71.95 cents, a level it hasn't broken through since mid-June, from 72.31 US cents late yesterday. The trade-weighted index fell to 76 from 76.18.

The forecasts showed a bigger surplus for the 2017 financial year, largely at the expense of out-years and scaled back projections for economic growth from the May update, with Treasury predicting gross domestic product grew 2.8 per cent in the 2017 June year, a slower pace than the 3.1 per cent previously forecast.

With polls showing a close election race and a central bank determined to keep interest rates low, there has been little local news to underpin the kiwi.

"The currency was hit hard yesterday and has continued to struggle overnight," traders at HiFX said in a note.

"The catalyst for the fall was yesterday's pre-election fiscal update where forecasts for both growth and budget surpluses were lowered."

The US dollar index fell about 0.4 per cent overnight after figures showed a drop in sales of new homes and weaker manufacturing activity, although services activity was stronger, while stronger European manufacturing activity helped lift the euro.

The kiwi dropped to 61.13 euro cents from 61.49 cents late yesterday.

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Today traders will be watching for July merchandise trade data in New Zealand, with a deficit of $200 million expected after a surplus of $242m a month earlier.

The local currency declined to 91.29 Australian cents from 91.62 cents. It was little changed at 56.42 British pence and fell to 4.8083 yuan from 4.8159 yuan. It declined to 78.78 yen from 79.18 yen.