KEY POINTS:
The dollar has slumped sharply in its first few sessions of trade in 2007 after hitting a 12-month high at the start of the year.
Closing at US68.56c yesterday, it has fallen more than US2c - or 3.5 per cent - from the 12-month high of US70.98c it
reached a week ago.
"The pullback has been quite fearsome," said ANZ senior dealer Alex Sinton.
"We've had probably the most volatile Christmas-New Year period that I've ever seen in my 20 years in the markets." The kiwi had been rising, fuelled by the weakness of the US dollar.
However, it began to slide last week on talk the Bank of Japan would raise short-term interest rates. That led to the Japanese yen rise across the board and investors to unwind carry trades - loans taken out in a low yielding currency such as the yen to invest in a high yielding one such as the kiwi.
Meanwhile, a fall in commodity prices weighed on both the New Zealand and Australian dollars and, on Friday, better than expected US jobs data lent support to the greenback.
"That spike up was really a lack of liquidity and the flipside of that is when you start selling you're going to have the same problem, so we basically ended up where we started," said Earl White of Bancorp Treasury Services.
Sinton said the kiwi's end-of-year uptrend against the greenback had a base of US68.08c. "Given the magnitude of how we've moved in the last 24 to 48 trading hours it's quite conceivable to have us down through there and testing US67.5c support."
BNZ currency strategist Danica Hampton said: "We saw the kiwi just accelerate ridiculously through the latter part of December and we've largely just seen a correction from that. If you squint your eyes and look through the volatility of the last three weeks, not a whole lot has changed.
"I still think we're going see a US67.50c-US69.50c range over the next couple of months underpinned by yield demand and expectations that the Reserve Bank may raise rates again."
Dollar dips
* January 2 the kiwi touches US70.98c - its highest level since December 13, 2005.
* January 8 it closes at US68.56c its lowest level since early December, 2005.