NZ dollar drops as global sharemarkets sink

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The New Zealand dollar dropped 1.3% against the greenback after a raft of weak U.S. economic data saw global equities plummet with investors fleeing for the safety of bonds and gold.

The New Zealand dollar recently traded at 82 U.S cents, down from 83.06 cents yesterday, and fell to 70.60 on the trade-weighted index of major trading partners' currencies from 71.24.

Global equity markets shifted into full retreat amid fears the U.S. economy was spiraling into recession after the August survey of U.S. Mid-Atlantic factory activity slumped to a two and a half year low, and the Philadelphia Federal Reserve Bank Index dropped to its lowest level since March 2009.

On Wall Street, the Standard & Poor's 500 Index fell 4.8 per cent to 1,136.48, and Europe's Stoxx 600 Index fell 4.7 per cent to 226.70.

That saw demand for growth-linked assets, such as the kiwi and Australian dollars, dwindle as investors fled for the relative safety of bonds and gold.

The price of gold spiked to US$1825.90 an ounce, up from US$1795.39 yesterday, and the on yield 10-year US Treasuries dropped 8.7 basis points to 2.083 per cent, near their lowest level since the global financial crisis.

"People were expecting a small decline in the data but the extent of it totally caught the market off guard," said Khoon Goh, head of market economics and strategy at ANZ New Zealand. "That saw risk come off with massive selling of risk assets across the board, which filtered down into our currency."

On the crosses, the New Zealand dollar recently traded at 79.01 Australian cents, down from 79.34 cents yesterday, and fell to 62.84 Japanese yen from 63.60 yen previously. It dropped to 57.28 euro cents from 57.65 cents yesterday, and declined to 49.72pence from 50.28 pence previously.

Goh said the kiwi may trade between a range of 81.80 US cents and 82.20 cents, with the currency possibly heading for 80 cents level if it breaks below the lower end of the range.