KEY POINTS:
The New Zealand dollar traded in a massive US2c range today, plunging in afternoon trading after early threatening post-float highs.
The dramatic moves are all in reaction to the twists and turns in global financial markets engulfed by the unfolding crisis surrounding US investment bank Bears Sterns.
The kiwi touched US82.13c - the same as the 23-year post-float high touched in late February and on Friday and again traded as high as US82.00c today on the back of a weak US dollar.
But investors shied away from high-yielding currencies like the New Zealand dollar when news broke that JPMorgan Chase & Co was buying Bear Stearns for a rock-bottom price.
The Kiwi dollar plunged in afternoon trading to US80.23c and by 5pm it settled at US80.55c
"The Kiwi was underpinned by the weaker US dollar and went up to that high of US82c then we heard a whole lot of stuff out of the US," said BNZ currency strategist Danica Hampton.
"We had lots of rumours circulating about Bears Sterns," she said.
There was a lot of selling on the dollar-swiss and dollar-yen cross and it moved through to the New Zealand dollar crosses.
"We had a big move down this afternoon. Markets are volatile and quite illiquid.
"It is a case of risk aversity. Investors started to shun high-yielding high-current-account currencies. The Kiwi dollar currency is one of those currencies that is quite sensitive to risk appetite," she said.
Also as an export nation New Zealand needed an environment of robust global growth to prosper.
There were counterveiling forces at work between the weak US dollar sentiment versus the risk aversion story that affected high-yielding currencies like the Kiwi dollar.
With little local economic news this week the two forces would continue to play against each other, producing volatile trading in the Kiwi dollar.
The US Federal Reserve also moved today to cut its discount rate, the interest it charges financial institutions, to 3.25 per cent from 3.50 per cent, effective immediately, creating another lending facility for big investment banks to secure short-term loans.
The Fed is expected to cut its main Fed Funds interest rate, which now stands at 3 per cent, after a meeting on Tuesday US time to bolster sentiment. Some believe the Fed will slash the rate by a full point.
But there were also financial profit reports from US banks due this week to remind everyone of the problems.
The question is whether the Fed, which has had mixed success in lessening the impact of the credit crisis and calming the markets, can restore confidence to Wall Street.
The Fed's move today was shock news. It slammed the US dollar to a new record low against the euro and pummelled Asia stock markets early today.
Early Saturday the NZ dollar reached a two-week high against the Australian dollar of A87.22c. It fell away to A86.85c by 8am today but was back at A87.20c by 5pm.
Against the euro the kiwi was 0.5086, well down on the near 0.55 euro of a fortnight ago.
Against the yen, the NZ dollar fell from above 80.90 early Saturday, to be at 77.95 by 5pm. The trade weighted index was 70.96 from 72.34 at 4.30pm on Friday.
Currency rates:
NZ dlr/US dlr US80.55c US81.66c
NZ dlr/Aust dlr A87.20c A86.42c
NZ dlr/euro 0.5086 0.5231
NZ dlr/yen 77.95 82.20
NZ dlr/stg 39.99p 40.21p
NZ TWI 70.96 72.34
Australian dollar US92.46 US94.46c
Euro/US dollar 1.5839 1.5606
US dollar/yen 96.77 100.72
- NZPA
