NZ dollar braced against offshore market volatility

The New Zealand dollar traded sideways today in a market braced for further negative developments in international markets.

The NZ dollar fell to a two-week low against the greenback a little above US69c on Tuesday night and by 5pm today had recovered to US69.24c. It was at US70.30c at 5pm yesterday.

Fear is again gripping financial markets and manifesting itself in sharp losses in equity markets. In currency markets currencies regarded as risky are out of favour again.

Current the fears centre on the interbank lending market in Europe. European banks need to repay a large 12 month facility with the European Central Bank (ECB). Demand for three-month cash tomorrow will expose how much banks still rely on the ECB and investors are awaiting developments.

Mike Jones, currency strategist at BNZ, said the NZ dollar traded sideways in its domestic session. The currency was under pressure from all the doom and gloom in international markets.

"It is a case of people steeling themselves for what might happen offshore tonight," he said.

The prevailing view was that the NZ dollar would push lower before it recovered.

Uncertainty about the global recovery also grew after data showed a steep fall in US consumer confidence, a sharp downward revision to China's leading indicators index and weakness in Japanese exports and unemployment.

Against the Japanese currency, the NZ dollar dropped to a three-week low, just under 61 yen from 62.42 yen at yesterday's local close. By 5pm today it was at 61.37 yen.

The NZ dollar even fell against the euro which hit an all-time low versus the Swiss franc and an 8-1/2-year trough against the yen.

By 5pm today the NZ dollar was at 0.5670 euro from 0.5682 euro at 8am from 0.5731 euro at 5pm yesterday.

Against the Australian dollar, it was A81.32c from A81.17c yesterday. The trade weighted index fell to 66.84 at 5pm from 67.50 yesterday.

- NZPA