The New Zealand dollar dropped to a nine-day low after slower than expected inflation raised questions over the track of rising local interest rates.
The kiwi fell as low as 85.79 cents, trading at 85.86 cents at 5pm in Wellington from 86.39 cents at 8am and 86.50 cents yesterday. The trade-weighted index dropped to 79.75 from 80.27 yesterday.
New Zealand's consumers price index slowed to an annual increase of 1.5 per cent in the three months ended March 31, from 1.6 per cent in the December period, and below the Reserve Bank's forecast. The tradable sector, which covers goods and services facing international competition, kept a lid on imported prices, while housing underpinned rising prices.
Still, traders have priced in a 97 per cent chance the Reserve Bank will hike the official cash rate a quarter-point to 3 per cent next week as governor Graeme Wheeler continues to try and head off building inflation pressures in the economy.
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"The currency is acting as a shock absorber, and I can't see it going too far while the RBNZ is actively reducing policy stimulus, increasing New Zealand's yield advantage compared to the rest of the world," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand in Auckland. "Every time the market has tried to take the kiwi down, it comes back smelling of roses."
The inflation figures followed another decline in dairy prices at Fonterra Cooperative Group's GlobalDairyTrade auction to a 14-month low. The GDT price index dropped 2.6 per cent to US$4,047 a tonne, from US$4,124 a tonne two weeks ago, the fifth straight decline and the lowest since February 2013.
China's economy grew at a faster than expected annual pace of 7.4 per cent in the March quarter, according to government figures, easing fears the world's second-biggest economy and Australia and New Zealand's biggest trading partner is slowing down.
Traders will be watching for a speech from Federal Reserve chair Janet Yellen to the New York Economic Club on Wednesday in the US, the release of the Fed's beige book and the Philadelphia Fed's business survey. UK unemployment and the Bank of Canada policy review will also be eyed.
The kiwi fell to 91.63 Australian cents at 5pm in Wellington from 92.10 cents yesterday, and dropped to 87.73 yen from 88.15 yen. It declined to 62.15 euro cents from 62.60 cents yesterday, and decreased to 51.35 British pence from 51.74 pence.