The New Zealand dollar fell about a quarter of a US cent in late trading on Tuesday following news that the dairy company, Fonterra, has reduced its milk payout to farmers.
ASB Bank head of external foreign exchange Tim Kelleher said the reduced payout will have a significant impact on farmers' incomes in the order of $3 billion to $3.5 billion.
He said Fonterra had its forecast payout from $7 a kilo to $6 per kilogram, which was lower than the bank has forecast.
But Mr Kelleher said Fonterra had increased its dividend from 10 cents to somewhere from 20 to 25 cents.
"Net $6.25 is about the low end of where the banks where, but it's a pretty severe drop from $8.40 last year, so you know we're talking about a 20 to 25 percent drop in farmer returns from a year ago."
Mr Kelleher said the currency dropped to 85.20 and it was a big loss for rural New Zealand from $3 to $3.5 billion.
At about 5pm, the kiwi was trading at 85.15 US cents, 90.63 Australian cents, 50.16 British pence, 0.6339 euro, 86.83 yen and 5.263 renminbi.
NZX falls 22 points
New Zealand shares fell, the benchmark Top 50 Index sinking 22 points to 5166.
Harbour Asset Management managing director Andrew Bascand said the market has been in a consolidation period awaiting the earnings round which starts in the next couple of weeks.
But he said there had been some action with Telecom giving back a lot after a reasonably strong rally over the last couple of weeks. Mr Bascand said there tended to be a couple of global sellers.
He said yield stocks were generally pulling back in markets, with Fletcher Building also pulling back on Tuesday.
Telecom shares fell 9 cents to $2.85 while shares in Fletcher Building shed 15 cents to $9.04.
Scales shares fell as low as $1.54 on Tuesday, below the $1.60 float price, and closed at $1.56.