WELLINGTON/SYDNEY: The New Zealand dollar tumbled to a five-month low on Wednesday as a key support level gave way in the face of a broadly stronger greenback, further softness in dairy prices and investor preference for the neighbouring Aussie dollar.
The kiwi fell as far as $0.8373, after support at $0.8400 finally gave way and triggered a flurry of stop-loss selling. It last traded at $0.8381.
Strong appetite to buy the Aussie against the kiwi saw the cross rate climb 0.4 percent to a near nine-month high of NZ$1.1090. Being long on the kiwi against the Aussie had been a very popular trade in recent months.
The kiwi suffered similar sizeable falls against the yen, euro and sterling, sending the trade-weighted NZ dollar index down to a two-and-a-half month low.
The US dollar scaled an 11-month peak against a basket of major currencies after upbeat US housing data added to hopes of a stronger economic recovery.
It was only last month the kiwi hit a near three-year high of $0.8839, but it has since been undone by fading economic momentum, falling commodity returns and the Reserve Bank of New Zealand signalling an hiatus in rate hikes.
"While the RBNZ remains in pause mode, and currency markets dwell on what lower dairy prices mean for the NZ economy, we're forecasting the NZ dollar to average $0.83 over the remainder of the year," said Westpac senior economist Anne Boniface.
Near term support was seen at around $0.8360 and $0.8340, the early March lows, with previous support at $0.8400 the first hurdle higher.
The latest Fonterra dairy auction was a mixed bag of price rises and falls for key products, with the overall index falling 0.6 percent. The index has fallen more than 40 percent since the peak in February.
Boniface said there was little sign that dairy market returns would improve any time soon, with forward prices for the important whole milk powder product barely higher.
The next tests for the kiwi include monthly domestic job adverts, migration, and consumer sentiment releases on Thursday.
The Australian dollar, meanwhile, was a touch softer on the day at $0.9289. It briefly dipped to a session low of $0.9285 after Reserve Bank of Australia Governor Glenn Stevens said the risk of a fall in the currency was being under appreciated.
But Stevens' glass half-full outlook on the economy led markets to trim the probability of a cut in rates anytime soon, with a move by December now put at no more than a one-in-four chance .
"Today's testimony confirmed that the hurdle to cut rates further is high despite some market speculation and reinforced an on-hold message," said Su-Lin Ong, senior economist at RBC.
"Intervention and the A$ was discussed several times, and while not ruled out, the hurdle appears equally high on that front."
The Aussie was firmer against the yen at 95.83 and steady on the euro, which fetched A$1.4319.
New Zealand government bonds had a mild offered tone, sending yields a tick higher along the curve.
Australian government bond futures eased, with the three-year bond contract down 2 ticks at 97.380. The 10-year contract was also 2 ticks lower at 96.585.
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