The New Zealand dollar fell as much as four-fifths of a US cent today before recovering about half of that.
Peter Cavanaugh, senior adviser at Bancorp Treasury Services, said the currency was already sagging before Fonterra cut its milk price payout forecast.
Announcing its annual results today, the dairy giant slashed the predicted payout from $6 per kilo of milk solids to $5.30. However, it confirmed its record payout for last season's milk of $8.40 per kilo of milk solids.
"The New Zealand dollar suffered badly last night when a number of negative factors just finally overwhelmed it. Worries about China, a general unease towards current commodity currencies, a bit of a move to save haven currencies following the US air strikes in Syria and apprehension ahead of Fonterra's announcement this morning.
"Fonterra's announcement delivered exactly what markets expected: a sharp downward revision to this year's payout. And you've got to remember that it's gone from $8.40 to $7, $6 and now $5.30.
"Ironically, of course, the lower payout pushed the New Zealand dollar lower, which gave exporters and opportunity to put some hedging in place, which means the New Zealand dollar has received some support around the 80-and-half level."
At 5.20pm today the New Zealand dollar was trading at 80.8 US cents off its 80.4 cent low, at 91.07 Australian cents, 49.25 British pence, 0.6285 euro, 87.68 yen and 4.96 renminbi.
New Zealand shares were slightly stronger today, the benchmark Top 50 Index gaining 17 points to 5258, shaking off negative sentiment in Australia and elsewhere.
Johnny Cochrane, the director of wealth management at Murray and Co, said the market is still reacting to the decisive election result in which the National Party won a third term on Saturday.
"Negative leads from Wall Street overnight had limited impact on the New Zealand equity market. It's still basking in the glow of a strong win for National over the weekend.
"Some weakness today from Spark and Fletcher Building, but both of those were ex-dividend today. Nuplex was up strongly after confirming discussions with Private Equity to sell two of their Australasian businesses, and also Diligent having a strong day today as well."
Spark's shares fell 6 cents to $2.97, while Fletcher Building fell 13 cents to $8.78. Nuplex rose 20 cents to $3.22 and Diligent gained 10 cents to $4.75.
