SYDNEY/WELLINGTON: The New Zealand dollar hit a fresh one-year trough on Monday after New Zealand Prime Minister John Key suggested he would like to see a weaker currency, taking an already wounded Australian dollar deeper into red.
The kiwi took a further pummelling as the Reserve Bank of New Zealand confirmed it had sold the currency in August, sending it to a one-year low around $0.7708.
The central bank sold a net NZ$521 million ($406.1 million) in an effort to weaken the currency which it views as unjustifiably high given falling prices for some of New Zealand's major commodity exports.
"One of the reasons for the sell-off is the confirmation that they had sold. It means it can happen again," said Westpac senior currency strategist Imre Speizer, adding the RBNZ would likely be well satisfied with the impact of its actions.
The kiwi had already been on the back foot after comments by Prime Minister Key that 65 U.S. cents would be a fair value for the kiwi.
"In the end the Goldilocks rate - not to high, not too low, just about right - I don't know, 65 U.S. cents maybe - lower than it is today," Key said in response to questions at a news conference.
The kiwi fell against all the majors, with even the Aussie dollar climbing 0.8 percent to a near three week high of NZ$1.1236, while the kiwi slid more than 1 percent against the yen and the euro.
The trade-weighted NZ dollar basket plunged 1.1 percent to a one year-low.
New Zealand government bonds were trading a touch firmer sending yields a tick lower along the curve.
The Australian dollar slipped three quarters of a U.S. cent in the session to $0.8695, its weakest in eight months and pulling close to this year's trough of $0.8660. It was last at $0.8700, having tumbled 6.6 percent this month.
Much of the pressure was due to a rising U.S. dollar as investors price in a divergent policy path for the United States compared to the euro zone and Japan.
Undermining the Aussie was a big drop in the price of iron ore, Australia's top export earner, and another disappointing reading on China's economy at the weekend.
Political unrest in Hong Kong gave investors another excuse to sell the Aussie, which is often used as a liquid proxy for China bets.
All of which led the speculative community to nearly cut all long positions in the Antipodean currencies. CFTC data showed Aussie net long contracts dropped to around 8,000, from over 41,000 earlier in the month.
Net longs contracts in the New Zealand dollar now stand at less than 2,000.
A major focus this week will be China's official PMI reading on Wednesday, as worries over the economic outlook grow. The Australian dollar is sensitive to news out of China, its key export market.
"A softer-than-expected Chinese manufacturing PMI would compound the concerns about the economy and dampen the AUD," said Joseph Capurso, a strategist at Commonwealth Bank of Australia, seeing the Aussie setting new lows for 2014 this week.
Australian government bond futures retreated from three-week highs, with the three-year bond contract down 1 tick at 97.210. The 10-year contract shed 2 ticks to 96.455.
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