New Zealand dollar falls against greenback as Japan crisis worsens

Photo / Dean Purcell

The New Zealand fell against the greenback but was relatively stable compared to other currencies with markets in full risk aversion mode as Japan's nuclear catastrophe becomes increasingly dire.

Japan's currency strengthened 0.9 per cent to 80.14 yen per US dollar, its lowest level since 1995, amid reports authorities would be unable to prevent a full scale nuclear meltdown at its earthquake-crippled plants.

That fuelled speculation the North Pacific country would start repatriating funds to pay for the damages.

Volatility levels spiked further after European Union EU energy chief Guenther Oettinger described the unfolding crisis as "catastrophic"and "out of control". The Chicago Options Exchange Board's Volatility Index, known as the VIX and treated as Wall Street's 'fear gauge', rose to 30.15 from 24.99 yesterday.

"There is more risk aversion out there with the unwanted carry trade, and the market is overtly bearish on the US dollar right now," said Tim Kelleher, Head of institutional FX sales NZ for ASB Institutional. "The dollar/yen is poised at all time lows, and given the amount of repatriation I would have thought it would have gone lower."

The kiwi fell to 72.95 US cents from 73.30 cents yesterday, and fell to 64.40 on the trade-weighted index of major trading partners' currencies from 64.74.

It rose to 74.20 Australian cents from 73.71 cents yesterday, and fell to 58.05 yen from 59.30 yen. It rose to 53.35 euro cents from 52.41 cents yesterday, and sank to 45.41 pence from 45.60 pence.

The heightened risk aversion saw the kiwi gain against the Australian markets as investors fled growth sensitive currencies, with the Aussie bearing the brunt of the selling in the session.

"The Aussie/yen has been the darling of Asia, with reasonable yields so that's where the money is concentrated," said Kelleher.

"We're at the bottom of a 20 year low, and any changes are likely to be off Australian dollar weakness rather than kiwi dollar strength."

He said the kiwi is likely to trade in a range of between 72.50 US cents and 73.50, with support from exporters helping to push the currency trade off its support levels.