The New Zealand Dollar (NZD) has been experiencing a downward trend for the past week against the USD due to speculation that its rise to an 8-month high against the U.S currency was too quick. The NZD/USD has fallen over 4% since touching 65.94 U.S. cents on June 2, the most since October.
The kiwi also suffers from a narrowing gap between the yields of government bonds in New Zealand and bonds of similar maturity in the U.S; this further strengthens the USD. A higher Dollar can also result in lower commodity prices which will further hurt the NZD as the currency is tightly linked with movements in commodities prices.
Further pressure on the kiwi arose after rumors the Federal Reserve will increase interest rates this year. The benchmark interest rates are 2.5% in New Zealand compared with 0.1% in Japan and as low as 0% in the U.S. This difference in rates attracted investors to the nation�s higher-yielding assets. The Reserve Bank of New Zealand (RBNZ) will likely leave its benchmark rate unchanged when it meets June 11; however, an increase in U.S interest rates will diminish the nation�s appeal to investors.
Rising equity markets in the E.U and U.S might push the NZD slightly up against the U.S currency as this will push investors into higher yielding assts. However with the current shaky situation in the E.U it might not be enough to reverse the trend.