NZ dollar drops on 'reality check' of grim economic outlook

The New Zealand dollar dropped below 65 US cents after pessimistic economic outlooks. Photo / Getty Images

The New Zealand dollar dropped below 65 US cents after pessimistic economic outlooks from the US Federal Reserve and the Organisation for Economic Cooperation and Development brought investors back to earth.

The kiwi fell to 64.92 US cents at 5pm in Wellington from 65.28 cents yesterday. The trade-weighted index declined to 71.63 from 71.97 yesterday.

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Commodity-linked currencies such as the kiwi and Aussie dollars have tracked equity markets higher in recent weeks as investors grew optimistic about the global economy as national lockdowns were lifted and business activity resumed.

That took a turn overnight with the Fed's first update since the pandemic broke out painting a grim picture of the US economy. The OECD's similarly gloomy update added to the downbeat tone.

Stocks across Asia followed Wall Street lower, which weighed on the trans-Tasman currencies.

"It's a reality check that it will be two years before we can even contemplate having some sort of normality," said Martin Rudings, a senior foreign exchange dealer at OMF.

"We're expecting further equities downside overnight and for the kiwi and Aussie to get hammered."

Rudings said the kiwi dollar may fall to 63.50 US cents.

Local data today showed consumer spending bounced back in May, with retail sales on credit and debit cards up 78.9 per cent in the month, more than the 60 per cent increase economists had expected.

The kiwi traded at 93.60 Australian cents from 93.62 cents yesterday and at 51.16 British pence from 51.23 pence. It fell to 57.17 euro cents from 57.54 cents and dropped to 69.52 yen from 70.22 yen. The local currency sank to 4.5897 Chinese yuan from 4.6180 yuan.

The bid price on the two-year swap was 0.2350 per cent from 0.2300 per cent, while the 10-year swap was at 0.8000 per cent from 0.8475 per cent yesterday.