The New Zealand dollar fell to a 3 1/2 month low as rising US interest rates prompted traders to focus on economic fundamentals, where higher yields in the US offer greater returns than elsewhere, spurring demand for the greenback.

The kiwi dropped to 71.14 US cents as at 5pm in Wellington, extending its decline from 71.44 cents at 8am and 72.03 cents yesterday. The trade-weighted index fell to 73.68 from 74.24 yesterday.

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The Dollar Index reached a three-month high after the yield on US 10-year Treasuries peaked just below the key 3 per cent level, reinforcing the trend to higher US interest rates and overshadowing the political uncertainty that's seen investors shy away from the greenback in recent months.

In contrast, the yield on New Zealand's 10-year government bond was at 2.91 per cent, with the Reserve Bank unlikely to hike the official cash rate until next year.

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"The longer-dated US yields - the 10-year Treasuries - has launched higher and everyone has just fallen on their sword and said 'we can't run short US dollars'," said Martin Rudings, senior dealer foreign exchange at OMF, referring to the position where an investor bets an asset will depreciate.

"We've had a realisation of the fundamentals - every now and then the fundamentals kick in."

Local data today showed net migration continued to slow in March as an accelerating number of departures offset new arrivals.

New Zealand's two-year swap rate fell 2 basis points to 2.28 per cent and the 10-year swap declined 2 basis points to 3.24 per cent.

The local currency fell to 93.53 Australian cents from 93.76 cents yesterday after Bureau of Statistics figures showed inflation remained subdued across the Tasman. The Reserve Bank of Australia reviews monetary policy next week and is expected to stay on hold.

The kiwi declined to 58.24 euro cents from 58.78 cents yesterday ahead of the European Central Bank policy review on Thursday. It slipped to 51.01 British pence from 51.41 pence yesterday and fell to 77.40 yen from 77.68 yen. The local currency dropped to 4.4908 Chinese yuan from 4.5352 yuan yesterday.