Dollar decline tipped to continue

The New Zealand dollar was heading for a 12 per cent annual decline. Photo / Christine Cornege

The New Zealand dollar was heading for a 12 per cent annual decline after weathering weaker dairy prices and concerns about slowing Chinese economic growth, and may extend its slide in early 2016 as US growth comes into view.

The kiwi fell to US68.41c as at 3pm from US68.56c late on Wednesday. The trade-weighted index slipped to 74.27 from 74.40 on Wednesday and is heading for an annual decline of about 6 per cent.

The year's selloff in the kiwi came as prices of dairy products fell to their lowest levels in six years in August, on the GlobalDairyTrade platform and on concern demand from China was waning in the face on increased supply, especially from Europe.

Prices revived somewhat in the second half of the year. The kiwi has also strengthened somewhat heading into the end of the year, even though the Reserve Bank cut its benchmark interest rate to 2.5 per cent, while the Federal Reserve raised rates for the first time in almost a decade.

"The kiwi has been driven down [in 2015] by weakness in China, the big drop in dairy prices," said Angus Nicholson, market analyst at IG Markets in Melbourne.

"Once prices started to spike up again, a huge amount of speculative money has flowed back into the kiwi."

The New Zealand dollar has been "somewhat resilient in the face of US dollar strength". The New Zealand economy would benefit from the kiwi falling back to within a range of US64c to US66c, he said.

The first test of the kiwi in 2016 may be with US non-farm payrolls this month, where the expectation is that the world's biggest economy stacked on another 200,000 jobs in the latest month, Nicholson said.

"A drop below US66c does seem quite likely," Nicholson said.

The New Zealand dollar fell to A93.78c from A94.11c on Wednesday, dropped to 62.62 euro cents from 62.73c, weakened to 46.15 British pence from 46.23p, declined to ¥82.39 from ¥82.58, and slid to 4.4416 yuan from 4.4497 yuan.

The two-year swap rate fell 1 basis point to 2.83 per cent and the 10-year swaps fell 1 basis point to 3.73 per cent.