The New Zealand and Australian dollars fell sharply against the US currency yesterday, as US markets reacted to reports of improved household incomes and construction spending.
The kiwi hit its lowest level in almost five years over the long weekend as traders favoured the US dollar amid growing expectations the Reserve Bank may cut interest rates next week.
At one stage, the kiwi was trading at US70.86c, 10% below where it was six months ago. At 5pm the kiwi was trading at US71.14.
In Australia, the dollar fell to a seven-week low on the back of strong US manufacturing figures.
ASB chief economist Nick Tuffley said the key focus this week would be on the US non-farm payrolls figures due out on Friday.
A stronger US labour market was likely to bring forward market expectations for the first Federal Reserve interest rate rise and support the US dollar.
The ASB was no longer forecasting New Zealand-Australian dollar parity and Mr Tuffley expected the cross rate to trade in a range closer to A90c in the year ahead.
The dollar would continue in a range of 0.65 and remain historically strong against the pound. The dollar was also expected to trade in a range nearly 90.
An Institute of Supply Management report showed US manufacturing growth accelerated in May for the first time in six months, propelled by more new orders and an increase in hiring.
Bank of New Zealand currency strategist Raiko Shareef said the data helped the US dollar make solid gains after a few flat days.
''The market continues to return to its love affair with the US dollar, amid a strong run of US data.''
The kiwi has been out of favour with investors as weaker-than-expected dairy prices dent farmer incomes and after the Government and Reserve Bank introduced measures to try to cool the Auckland housing market.
Traders are pricing in a 54% chance the Reserve Bank will cut its official cash rate (OCR) next week to 3.25% but the BNZ and ASB believe the cut will come in September, at the earliest.
The GlobalDairyTrade auction out today will indicate whether the fall in dairy prices has stabilised.
Last week, Fonterra again cut its 2015 payout forecast but surprised the market by a stronger forecast payout for 2016.
At a glance
• NZ dollar traded below US70c, a five-year low.
• Australian dollar traded at seven-week low against US dollar.
• Parity between New Zealand and Australian dollars no longer likely.
• Dairy prices likely to remain at recent lows.
