NZ dollar dips below key 77 US cents as greenback touches fresh four-year high

File photo / NZ Herald

The New Zealand dollar fell below a key support level of 77 US cents overnight, driven by a strengthening US currency on optimism about the outlook for the world's largest economy.

The kiwi touched 76.83 US cents, and was trading at 77.15 cents at 8am in Wellington, from 78.29 cents at 5pm yesterday. The trade-weighted index dropped to 76.51 from 77.05 yesterday.

The US dollar index, which measures the greenback against a basket of currencies, touched a fresh four-year high of 87.606, after the Republican party in the US won control over both chambers of the US Congress, the House and the Senate, for the first time since 2006, boosting investor confidence for more pro-business policies. Adding to optimism about the US economy, a report from payrolls processor ADP showed US private employers added more jobs than expected last month, underpinning expectations for a strong print in Friday's key non-farm payrolls report.

"The Republicans gaining control of the Senate has pushed the US dollar much higher overnight," said Kevin Morgan, a senior dealer, foreign exchange & derivatives at OMF. "US dollar strength across the board has seen the kiwi and the Aussie sold, the euro sold and also the yen sold."

US dollar strength is underpinned by good employment data and the end to the Federal Reserve's quantitative easing programme, which is turning investor attention to the timing of interest rate hikes, said OMF's Morgan. While in New Zealand, concern about weaker dairy prices is weighing on the kiwi, he said.

"The continued strength of the US dollar is the bigger driver for the kiwi and that is dragging it lower. At the moment the pressure is very much to the downside," he said.

The 77 US cent level "has been a key support level for the kiwi dollar, we have broken through that overnight, although we are back above it temporarily, the pressure is all downside now for the kiwi and the Aussie and the US dollar has got a lot of momentum to the upside which is pressuring the kiwi and Aussie to the downside."

The New Zealand dollar rose above 90 Australian cents for the first time in two weeks, touching a high of 90.04 cents as the Aussie broke below a key technical level of 86.50 US cents.

"The Australian dollar was the weakest performer overnight, likely taking its cues from falling metals and iron ore prices, as well as higher FX volatility," Raiko Shareef, currency strategist at Bank of New Zealand, said in a note. Iron ore prices declined 2 percent yesterday after China's authorities ordered steel mills to slow production in an attempt to reduce haze ahead of an APEC summit in Beijing, Shareef said.

The local currency was trading at 90 Australian cents at 8am from 89.44 cents yesterday ahead of the release of Australian October labour market data today.

In New Zealand today, state-owned valuer Quotable Value releases its latest monthly data at midday.

The kiwi weakened to 61.80 euro cents from 62.31 cents yesterday and dropped to 48.28 British pence from 48.89 pence. The European Central Bank and the Bank of England are both holding meetings today, with most attention on a press conference fronted by ECB president Mario Draghi.

The New Zealand dollar slipped to 88.50 yen from 89.02 yen yesterday ahead of the release of the Bank of Japan minutes from its last meeting.

Bank of Japan governor Haruhiko Kuroda said yesterday that there are "no limits" to the BoJ's policy tools after the central bank last week unexpectedly added further monetary stimulus in an attempt to boost inflation and stimulate growth.