A surprisingly large interest rate cut across the Tasman helped the New Zealand dollar recover from a two-year low, as the market seized on any positive news amid global gloom.
The Reserve Bank of Australia's 100-basis point cash rate cut to 6 per cent, its largest since May1992, sparked an initial fall then recovery in the Australian and New Zealand dollars.
The US dollar and euro also jumped to session highs against the yen as the RBA action prompted talk of co-ordinated central bank action to stem the worsening credit crisis.
"Certainly for the RBNZ on October 23, it increases their chances of a larger cut," said Westpac head of financial market sales, Jake Soares.
The market had been factoring in a 50-point cut from the RBNZ and was slowly moving to 75 points.
"I think now you'll possibly see the market here, particularly, move to maybe a 100-point cut by the RBNZ, given that we're further down the recessionary track than Australia is," Mr Soares said.
By 5pm, the kiwi was at US63.35c from US65.15c, having recovered some of its 4-per cent loss overnight, and above the post-RBA low of US62.38c.
Against the Aussie, the kiwi rose to A87.57c from A86.50c, although it slid against the Japanese yen to 46.56 yen from 47.80. The kiwi was earlier at five-and-a-half year lows against the yen.
"At the moment, any bad news we just see a continuation of the risk aversion," Mr Soares said.
"Any slight positive news like a 100-point cut by the RBA or injection by the Fed, the market takes that as good news and the US dollar weakens, and kiwi benefits from that."
Sellers of the kiwi included sizeable long-term investors, who had been selling down their holdings since the kiwi fell below US75c in late July, he said.
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