The New Zealand dollar skidded to a one-year low on Monday after New Zealand's major dairy exporter, Fonterra, said at the weekend it had found bacteria in some of its products that could cause botulism.
Dairy produce accounts for about a quarter of New Zealand's NZ$46 billion ($36 billion) annual export earnings, and the currency is sensitive to the fortunes of Fonterra, the world's biggest dairy exporter.
Fonterra said over the weekend that contaminated whey protein concentrate had been exported to China, Malaysia, Vietnam, Thailand and Saudi Arabia and used in products including infant milk powder and sports drinks.
In response, China has halted the import of some dairy products from New Zealand and Australia, New Zealand's Ministry of Primary Industries said.
The kiwi was marked as low as $0.7670, versus around $0.7840 late in New York on Friday, reaching lows not seen since June 2012. The kiwi later recovered to $0.7782.
"It's a pretty serious development for New Zealand given how important dairy is. But what usually happens with these food quality issues is that as details come out, people tend to feel more reassured," said Chris Tennent-Brown, FX economist at Commonwealth Bank in Sydney.
Elsewhere, the Australian dollar hit a three-year low after weaker-than-expected retail sales data reinforced expectations of further interest rate cuts by Australia's central bank.
The Aussie dollar touched a low of $0.8848, its lowest level since August 2010. The Aussie later came off that low, however, and last stood at $0.8891, down 0.2 percent from late U.S. trade on Friday.
The Reserve Bank of Australia is widely expected to cut interest rates to a record low of 2.5 percent on Tuesday, following dovish comments last week from RBA Governor Glenn Stevens. Some market players suspect that the central bank could ease policy further later this year.
Other major currencies were calmer, with the U.S. dollar struggling to gain traction after a closely watched report on Friday showed U.S. employers slowed their pace of hiring in July.
