The New Zealand dollar weakened as signs of an improvement in the US economy buoyed speculation the Federal Reserve will start tapering its asset purchases.
The kiwi dropped to 77.45 US cents from 77.73 cents at the 5pm market close in Wellington yesterday. The local currency earlier this morning fell to 77.31 cents, the lowest level since Monday. The trade-weighted index gained to 73.82 from 73.79 yesterday.
The US dollar index, which measures the greenback against the currencies of six trading partners, rose to its highest level in just over a month after a report showed orders placed with US factories rose in May. Traders are closely watching reports this week on the US labour market for indications on when the Federal Reserve may start pulling back on its US$85 billion a month in asset purchases, which has debased the greenback.
A report on US private sector payrolls, which is released tonight New Zealand time, will provide guidance for the main US non-farm payrolls on Friday.
"Tonight, all eyes will be on the US ADP employment report, as an indication of risks around Friday's all-important US payrolls report," Bank of New Zealand strategist Kymberly Martin said in a note. "A soft reading today could see upward momentum in the US dollar tempered."
Friday's data will probably show June US non-farm payrolls at 165,000, down 10,000 from May, while the unemployment rate is predicted to fall to 7.5 per cent from 7.6 per cent, according to Reuters polls. Fed chairman Ben Bernanke has made 7 per cent the target for beginning to ease its stimulus efforts.
US factory orders rose 2.1 per cent in May, following a revised 1.3 per cent advance the previous month, according to yesterday's Commerce Department report.
Stocks fell as comments by Federal Reserve Bank of New York President William Dudley suggested the central bank might reduce monetary stimulus provided by its bond-buying program.
Dudley told the Business Council of Fairfield County in Stamford, Connecticut, that "a strong case can be made that the pace of growth will pick up notably in 2014."
Still, asset purchases would continue at a higher pace for longer should labour market conditions and the economy's growth momentum prove less favourable than expected, he said.
In New Zealand today, prices of dairy products rose for the second time in a row at Fonterra Cooperative Group's latest GlobalDairyTrade auction and the volume sold jumped to a six-month high.
The GDT-TWI Price Index rose 0.7 per cent compared to the last sale two weeks ago. The average winning price rose to US$4,643 a tonne, the highest since the April 16 sale, from US$4,598 a tonne.
"We continue to see solid New Zealand commodity prices helping to fortify the New Zealand dollar against a broadly stronger US dollar in the year ahead," the BNZ's Martin said.
The local currency weakened to 84.66 Australian cents from 84.98 cents yesterday after the Reserve Bank of Australia kept its benchmark interest rate unchanged and said a further depreciation in the Aussie would spur more rebalancing of economic growth.
The kiwi gained to 77.90 yen from 77.51 yen yesterday as the US dollar broke through the psychologically important 100.00 yen level. The greenback strength is underpinned by US Fed indications it will gradually reduce monetary stimulus while the Bank of Japan vows to sustain it, BNZ's Martin said.
The New Zealand dollar edged up to 59.69 euro cents from 59.56 cents yesterday on concern over the next 8.1 billion euro disbursement of Greek bailout funds and after the resignation of Portuguese Finance Minister Gaspar because of the unpopularity of the austerity measures he has implemented.
The local currency was little changed against the British pound, recently trading at 51.10 pence from 51.17 pence yesterday.