The New Zealand dollar dropped below a key support level of 77 US cents to touch its lowest in more than a year as it was weighed down by a weaker Australian dollar and a strengthening US currency.

The kiwi touched 76.97 US cents, its lowest level since July 2013. The local currency was trading at 77.25 US cents at 8am in Wellington from 77.61 cents at 5pm yesterday. The trade-weighted index slipped to 76.27 from 76.48 yesterday.

The Australian dollar, considered a proxy for China, has been under pressure since weekend data out of China showed factory activity unexpectedly dropped to a five-month low in October. It was further hit by weaker-than-expected Australian building approval data yesterday. The kiwi has similarly been on the backfoot since the Reserve Bank last week removed a reference to the need to raise interest rates in its regular policy statement, following weaker-than-expected inflation data. Meanwhile, the US dollar has been strengthening on a more optimistic economic outlook and as it benefits from a weaker yen after the Bank of Japan stepped up its monetary stimulus.

"It's more an Aussie dollar story than kiwi and we have just been dragged lower along with it," said Bank of New Zealand currency strategist Raiko Shareef. "The broader theme is a strong US dollar story led by yen weakness. Given the softening or absence of a hawkish bias from the Reserve Bank, that means that kiwi is a pretty easy sell in that environment. We have just matched Aussie's decline lower."

BNZ's Shareef said the kiwi is likely to continue to test 77 US cents and will probably make a more sustained break lower.

"It's still going to be a story of the US dollar strengthening over our session," he said. "Kiwi tested the support of 77 US cents and I think before long we are going to be sustainably below 77 cents and it could well be today. Technically there is not much support between 77 cents and 74.60 so it's really a question of where it stops if it breaks lower. It is a long way down. It is quite hard to find levels of support in that gap, there's this big pocket of air."

In New Zealand today, the ANZ monthly commodity price index is released at 1pm.

Australia has retail and trade balance data scheduled for release and the Australian Bureau of Statistics also plans to published revised labour market data. No change in policy is expected from a meeting of the Reserve Bank of Australia this afternoon. The New Zealand dollar slipped to 88.83 Australian cents from 88.92 cents yesterday.

The kiwi touched a six-week high 88.23 yen following the Bank of Japan's surprise announcement on Friday that it would increase its stimulus programme. The local currency was trading at 87.87 yen at 8am from 87.48 yen yesterday. Japanese banks return to trading today following a holiday yesterday.

The New Zealand dollar slipped to 61.89 euro cents from 62.17 cents yesterday and weakened to 48.13 British pence from 48.59 pence.