KEY POINTS:
The New Zealand dollar plunged overnight as investors, spooked by growing problems in credit markets, fled risky assets financed by borrowing in the low-yielding Japanese currency.
US stocks plummeted on more signs of deterioration in the US housing market and problems in financing corporate takeovers.
A flight to quality on world markets prompted currency traders to buy back yen that had been used to buy higher-yielding currencies such as the NZ dollar in carry trades.
The kiwi was already under pressure after Reserve Bank Governor Alan Bollard signalled yesterday's interest rate rise might be the last in the cycle.
Foreign exchange dealers pondered whether the kiwi had peaked on Tuesday when it hit a 25-year high of US81.6c, possibly ending a five-year uptrend.
Against the greenback the NZ dollar has clearly been on the way down since Wednesday evening.
By 5pm yesterday it was buying around US79.90c, then slid further overnight with an accelerated drop between 6am and 7am taking it to US78.20c, the lowest against the US currency in a fortnight.
The ANZ bank today said that a view that the Reserve Bank's next move on interest rates will be to cut rates had weighed heavily on the kiwi, as had a significant increase in risk aversion.
Low risk aversion had been a key factor supporting the NZ dollar's incredible ascent, ANZ said.
If the overnight repricing of risk was to become entrenched, further downward pressure on the NZ dollar would be likely, but a major move lower for now would be difficult given the extent of US dollar weakness.
The pattern of the NZ dollar's fall against the greenback was repeated against the euro and the yen.
The kiwi hit a low of 92.80 yen around 7am today, having been at 96.35 at 5pm yesterday. It also got down to 0.5690 euro - the lowest point in nearly two weeks - from 0.5827 at 5pm yesterday.
The fall against the Australian dollar was less pronounced, but the kiwi has been on the way down since topping A91.60c on Tuesday. The kiwi reached below A89.70c, its lowest point in five weeks, having been around A90.30c at 5pm yesterday.
The trade weighted index was 74.71 at 8am today from 76.24 yesterday evening.
- NZPA
