Renewed uncertainty in Europe has once again clouded the outlook for the New Zealand dollar.
The currency ended yesterday at US79.30c - having spent March and April in a US80.50c to US83c range.
Imre Speizer, Westpac's senior currency strategist, said: "We think that this is the first leg of the downside and we can see it in the mid-70s over the next few months."
Currency strategists expect the kiwi to shift lower while Europe's ongoing debt problems cast a pall over global financial markets.
The currency is now well short of its commodities-driven, post-float high of US88.43c, hit last August, before Europe's sovereign debt problems resurfaced.
The local sharemarket yesterday reversed Monday's losses with the NZX 50 Index rising 0.3 per cent to 3552.06.
Greece is now bracing for a repeat general election after Sunday's inconclusive poll. Another election is expected to take place on June 17.
France has elected the anti-austerity Francois Hollande as president, which was seen as a blow to Europe's belt-tightening efforts.
In Spain, the Government has moved to bail out Bankia, the country's third biggest bank.
Both the New Zealand and Australian dollars are sensitive to developments on global financial markets because they are deemed to be at the riskier end of the scale.
But bearish domestic factors are also weighing on the New Zealand dollar, such as last week's higher-than-expected March quarter unemployment rate of 6.7 per cent, the Reserve Bank's threat to cut interest rates and continuing falls in key commodities prices - especially dairy.
"In the short term, there is a reasonable likelihood that we will see the currency continue to ease," said Mike Jones, currency strategist at BNZ.
"Certainly the storm clouds are starting to gather over Europe, and that's seen investors become a little bit more circumspect on global growth, which has led to falls in commodities prices," he said. "As a result of that, the commodities-linked, growth-sensitive currencies like the NZ dollar have come under some downward pressure."
While the currency is not as closely linked to the Australian dollar as it once was, the Reserve Bank of Australia's surprise 50 basis point rate cut on May 1 was an added negative for the kiwi.
The New Zealand dollar yesterday fell to A77.84c from A78.21c on Monday.
Jones said that with commodities prices continuing to come off the boil, the downside risks for the kiwi were becoming more compelling.
"The political uncertainty surrounding Greece and France does not look like going away for some time," he said.
"From that perspective, risk aversion in the form of selling of New Zealand dollars is probably going to remain in place."
But Jones expects support to open up at some point because local markets had become too pessimistic about the economy's prospects.
"We think the economy will continue to stumble along at low rates of growth and of course our fiscal prognosis is much better than many other parts of the world,' he said.
Jones and other currency strategists expect the currency to stabilise at around US75c.
BNZ's internal data showed that exporters had been under-hedged and that they were likely to emerge as buyers of kiwi dollars at the current lower levels.
The two-year swap interest rates fell to a record low of 2.46 per cent on Monday - partly reflecting market expectations that the Reserve Bank will move to cut its official cash rate, which sits at 2.50 per cent.
Strategists see the chances of a rate cut from the Reserve Bank as receding while the New Zealand dollar continues to depreciate.
Graeme Colloff, corporate foreign exchange dealer at Velocity, said more bad news - perhaps in the form of some failed bond tenders in Europe - would see the kiwi fall further.
"One thing is for certain, we are not going to see US88c any time soon."
- APNZBy Jamie Gray Email Jamie