KEY POINTS:
The New Zealand dollar recovered half a cent after an overnight plunge that saw it shed US2c on increased credit market concerns, a sell-off in global equities and a surge in oil prices.
At one point the kiwi briefly dropped below US74c, for the first time in three
weeks, but it closed on US74.76c compared with US76.23c at the same time yesterday.
The kiwi has dropped from US77.85c on Monday before the publication of a weaker than forecast CPI result
Dealers said the market got itself short. As well, exporters were keen buyers.
"It all hinges on the equities markets and the appetite for risk," said a Wellington dealer.
Sluggish international corporate earnings, renewed worries about liquidity and credit, and soaring crude oil prices are stoking concerns about global growth.
Oil jumped to a record above US$88 ($117.20) per barrel amid growing tensions in the Middle East. Producer group Opec blamed rampant speculation by big money investors rather than any shortage of supply.
The yen also gained broadly overnight, with investors selling high-yielding assets funded by the currency's cheap rates.
By 8am the NZ dollar was buying 86.73 yen, having fallen three yen overnight to its lowest level against the Japanese currency in three weeks. However, it recovered to 87.22 by the close.
Against the Australian dollar, the kiwi recovered to A84.12 from its A83.77c opening and against A84.82c at 4.30pm yesterday.
The trade weighted index lost 1.7 per cent to 70.32 from yesterday.
The ANZ bank said rising risk aversion had seen support levels for the NZ dollar smashed aside and long position holders exiting in droves.
The carry trade, which had been back in force during the past few weeks, unwound "severely" overnight.
Carry trades involve investors borrowing low interest rate currencies such as the yen to invest in higher yielding assets, such as the NZ dollar.
Dealers said ongoing jitters in equity markets could see the kiwi sold again.
"The currency market is swung around by the stock markets, with higher-yielding currencies getting the brunt of a risk reduction trend," said a dealer at an European bank in Tokyo.
The Nikkei stock average fell below the psychologically key 17,000 level for the first time in two weeks, ending the morning session down 1.1 per cent at 16,958.40.
Reuters currency rates
5pm today 4.30pm yesterday
NZ dlr/US dlr US74.76c US76.23c
NZ dlr/Aust dlr A84.12c A84.82c
NZ dlr/euro 0.5276 0.5368
NZ dlr/yen 87.22 89.45
NZ dlr/stg 36.79p 37.32p
NZ TWI 70.32 71.55
Australian dollar US88.92c US89.86c
Euro/US dollar 1.4172 1.4201
US dollar/yen 116.67 117.34
- NZPA