NZ dollar dives, then recovers

The New Zealand dollar dived then recovered some ground today and currency watchers advised investors to hold on tight for a volatile week's trading.

The NZ dollar fell as low as US71.50c today from US73.24c at 5pm on Friday. It recovered to be US72.19c by 5pm.

Spooked investors bailed out of so-called risky currencies such as the NZ dollar during the weekend and the local currency took another hit this morning on news that CIT Group Inc, a US lender to small and medium-sized businesses, filed for bankruptcy.

The bankruptcy was expected but it still ratcheted up risk aversion, helping the US dollar's run higher.

Lacklustre US personal spending and consumer confidence data and a weak US stock market on Friday were also factors.

BNZ Capital strategist Mike Jones said it was a volatile session and this week was likely to be a big one for currency markets.

"The NZ dollar, in particular, has been quite heavily sold," he said.

But the news was not all bleak. The Australian government today upgraded growth forecasts and slashed unemployment expectations in its 2009/10 mid-year economic and fiscal outlook.

The focus turned during the day to the Reserve Bank of Australia interest rate decision tomorrow, which has potential to move the NZ dollar higher if the commentary is hawkish. Investors are expecting a 25 basis point rise.

Also this week, the Bank of England, European Central Bank and Federal Reserve have rate decisions and there is unemployment and labour cost data looming.

The Australian dollar was A90.39c at 5pm, up from US89.94c at 8am, but down from US91.67c at 5pm on Friday. The NZ dollar was A79.84c from A79.89c on Friday.

The NZ dollar fell heavily against the yen to 64.48 yen at 8am from 66.87 yen on Friday but recovered to be 65.05 yen by 5pm today.

It was down to 0.4890 euro at 5pm from 0.4932 on Friday. The trade weighted index fell to 65.07 from 65.75 on Friday.

- NZPA