Dollar falls, may sink below 70USc, on greenback bulls, weak rates outlook

The New Zealand dollar fell, and may drop below 70USc for the first time since 2010, as strong US jobs growth stoked speculation of a US rate hike, while local interest rates have more chance of falling.

The kiwi traded at 70.48USc at 5pm in Wellington, having fallen as low as 70.23USc in New York on Friday, down from 71.39USc in Wellington at the end of last week. The trade-weighted index dropped to 74.20 from 74.69 on Friday.

The US dollar index, which measures the greenback against a basket of currencies, rose after the US non-farm payrolls report showed employers added 280,000 jobs last month, ahead of the 225,000 expected and the biggest gain in five months. That bolstered the case for the Federal Reserve to raise interest rates as soon as September, while some traders are betting the Reserve Bank might cut rates at its policy review on Thursday.

"The main positioning is long US dollars and a fairly soft interest rate outlook for New Zealand," said Alex Hill, head of corporate FX at NZForex. "It's not going to surprise too many forecasters to say we're expecting a '6' in front of the kiwi this year."

NZForex doesn't expect governor Graeme Wheeler to cut the official cash rate from 3.5% this week, preferring to take a wait-and-see approach on how inflation and economic growth pans out. That's likely to provide "a bit of short term relief for the kiwi on Thursday," Mr Hill said.

The kiwi may trade between 67.75USc and 74USc this week, according to a BusinessDesk survey of 10 currency analysts. Eight expect the kiwi to fall and two say it may rise.

The kiwi didn't move much after figures showed China's exports fell 2.5% in May while imports tumbled 17.6%, leaving the country with a monthly trade surplus of $US59.49 billion.

The New Zealand dollar traded at 92.57Ac, having earlier dropped as low as 92.21Ac, from 92.6Ac5 on Friday. Australian markets are closed today for the Queen's Birthday public holiday.

The kiwi weakened to 46.18 British pence from 46.46p on Friday and traded at 4.3735 yuan from 4.4273 yuan at the end of last week.

The local currency declined to 63.46 euro cents from 63.64 cents on Friday amid uncertainty about whether Greece can secure agreement with its creditors ahead of debt repayments due at the end of this month.

The kiwi fell to 88.45 yen from 88.82 yen on Friday.

New Zealand's two-year swap rate rose to 3.37% from 3.35% on Friday and the 10-year swap rate rose to 4.10% from 4.06%.

(BusinessDesk)