The New Zealand dollar fell, in line with the fallout in equities markets, as the Federal Reserve's pessimism about the economic impact of the coronavirus crisis and rising infections in some major US states cooled investor enthusiasm.
The kiwi was trading at 64.18 US cents at 5pm in Wellington, up from the day's low at 63.94 cents but down from 64.92 cents at the same time yesterday. On its current form, the currency is likely to end the week below its 65.07 US cent level in New York last Friday.
The trade-weighted index was at 71.17 from 71.63.
Today's decline followed a near 6 per cent plunge in the S&P 500 Index overnight.
Fed chair Jerome Powell said on Wednesday that the pandemic could result in permanent economic damage and an extended period of high unemployment.
The Fed is forecasting a 6.5 per cent fall in GDP for 2020 and zero interest rates for at least the next two years. It also signalled its willingness to continue economic stimulus through continued multi-billion-dollar bond purchases, effectively printing money.
A number of states have reported rising cases, including Texas which reported three successive days of record coronavirus hospitalisations. Florida recorded its worst weekly increase in cases and Arizona and California reported spikes in new cases.
The US has now recorded more than 2 million infections and more than 116,000 deaths. New Zealand, however, has reported 21 successive days without any new infections.
"The catalyst for it last night was supposedly the increasing virus count in some of the US states," said Imre Speizer, currency strategist at Westpac, adding it was more likely an overdue breather from the markets' strong run since late March.
Business Hub: ATEED chief Nick Hill - Rebuilding Auckland
Cold shoulder: Rob Fyfe departs business advisory role with 'no thanks' from PM
TVNZ set to cut 100 jobs to find $10m while they recruit new head of news
"It went a long way very quickly and it needed to basically let off steam." In such a situation, "any catalyst will do."
When so many people have been buying so many equities "any little thing to spoil the party will cause a run for the exit door".
"It's more of an excuse rather than a genuine reason," Speizer said.
However, the rally will likely resume soon.
"Overall, I would have to say that the massive amounts of money governments and central banks have thrown at the problem suggests you wouldn't want to be fighting that direction for now," he said.
"Maybe later in the year, when the true state of the economy and the economic damage is revealed," there may be a significant correction.
"For now, the amount of stimulus is so large it will continue to prop up asset prices and therefore risky currencies."
The kiwi traded at 93.80 Australian cents from 93.60 cents yesterday and at 51.05 British pence from 51.16 pence. It was at 56.82 euro cents from 57.17 cents, 68.76 yen from 69.52 yen and 4.5479 Chinese yuan from 4.5897 yuan.
The bid price on the two-year swap was 0.2250 per cent from 0.2350 per cent, while the 10-year swap was at 0.7400 per cent from 0.8000 per cent yesterday.