Falling commodity prices for NZ combine with American optimism to depress dollar.
The New Zealand dollar dropped below US85c yesterday on news that the United States economy is growing at a pace brisker than expected.
It fell to US84.6c as the greenback reached a 10-month high after US gross domestic product for the June quarter came in at an annualised 4 per cent, when the market had expected 3 per cent. The previous three quarters were revised upwards as well.
But then the US dollar lost some ground, and the kiwi firmed, when the Federal Reserve's policy-setting committee released a statement seen as only marginally less dovish than its previous one. The kiwi was trading around US85.06c late yesterday.
It was below US85c for a week in early June but apart from that has been trading above US85c since mid-March.
ANZ senior FX strategist Sam Tuck said the decline from US88c to US85c over the past three weeks was probably explained most by New Zealand-related factors, in particular falling export commodity prices and by the Reserve Bank's signalling a pause in its tightening cycle and warning that it saw the currency as unjustifiably high and at risk of a significant fall.
But the further move down from here would be based on growing optimism about the United States, which the June quarter GDP outcome had reinforced, he said.
Tuck sees a decent amount of support for the kiwi around US84.5c, based on its 200-day moving average, and then around US84c.
"If we managed to go through 84c we would see 83c pretty quickly."
Westpac senior market strategist Imre Speizer said the market had been warming to the US dollar since March and its move up since early July had been particularly strong, propelled by improving economic data and a gradual shift in the Federal Reserve's rhetoric.
Speizer thinks the kiwi will fall to US84c this month, with a chance of breaking below that level.
"I think 84c will be very sticky," Speizer said.
"That's a major level where buyers will think this is cheap and it has stalled here before and maybe it will stall here again. So you will get some buying there," he said.
"But I think it will crack through and when it does it will surprise all those people who were bottom-fishing there and they will capitulate and that will send it a few cents lower in short order."
The Federal Reserve reiterated its guidance that it expects to keep its policy interest rate on hold for "a considerable time" after its programme of quantitative easing ends, which is expected to be in October.
The current market consensus was that it would be mid-2015 before the Fed started to raise interest rates, Speizer said.
The latest statement was marginally firmer on the outlook for US inflation, saying it had "moved somewhat closer" to the Fed's longer-term objective of 2 per cent and that the likelihood of it running persistently below 2 per cent had diminished.
"They never change their tune quickly and they never say it is not a problem, but we are left with the feeling that the labour market is the key impediment to the US going forward," Tuck said.
The Fed said labour market conditions had improved and noted the decline in the unemployment rate.
"However a range of labour market indicators suggests that there remains significant under-utilisation of labour resources," it added.
The official US unemployment rate is 6.1 per cent but when discouraged workers not actively seeking work and those involuntarily working part-time are added it is closer to 12 per cent.
Tuck said there was considerable debate about how best to judge the degree of spare capacity in the labour market.
Some key dates to look for:
• Today: US jobs data, this morning, will provide further direction on recovery.
• Wednesday: The latest Fonterra global dairy auction - will prices keep falling?
• September 10: The next NZ Reserve Bank monetary policy statement.
• September 16-17: The next meeting of the US Federal Reserve - will there be clues about the end of stimulus?
Falling dollar means rising fuel prices
The price of petrol will rise if the dollar goes down. Photo / Thinkstock
The falling New Zealand dollar is bad news for motorists but for now they have been spared any pump price increase by a fall in international oil prices.
AA PetrolWatch spokesman Mark Stockdale said he was not expecting any immediate increase in petrol and diesel prices.
"It's wait and see at the moment. Further reductions in the New Zealand dollar will not be helpful."
Oil prices yesterday fell below US$100 a barrel despite a larger-than-expected decline in US crude supplies and heightened geopolitical tensions.
The main US contract, West Texas Intermediate (WTI) for September was yesterday trading at US$99.59 a barrel, down US70c from Wednesday and just on US$6 down on the high in July.
In London, Brent North Sea crude for delivery in September dropped US$1.21 to settle at US$106.16 a barrel.
Traders appeared to look past the better-than-expected official gross domestic product data for the United States.
The dollar was boosted by the GDP news and a stronger greenback tends to push down on dollar-priced oil.
"US GDP data was stronger than expected, but gives rise to the idea the Fed may raise interest rates somewhat sooner than previously estimated, supporting a stronger US dollar that may be limiting buying interest in WTI," said Tim Evans of Citi Futures.
Ian Twomey from energy sector analysts Hale & Twomey said tension in Ukraine had led to sanctions on Russia but they were targeted at exploration rather than the flow of oil.
If the kiwi continues to fall:
Exporters: Great news for anyone selling overseas.
Tourist businesses: New Zealand operators have endured a US80c-plus dollar for nearly a year. Further sustained falls could attract more visitors but the high-value market is not so concerned about exchange rates.
Drivers: New Zealand imports all of its transport fuel and this will be more expensive. Petrol companies absorb the increased cost for competitive reasons but not for long.
Consumers goods buyers: The price of imported goods will go up but competitive pressure will keep a lid on them. Online shoppers will see the impact immediately.
Overseas holidaymakers: The dollar's not going to go as far as recently but it's a long way short of the "kiwi peso" of the early 2000s when it fell below US40c
- additional reporting Grant Bradley / AP