Jobs data today, interpreted as "soft", sent the kiwi sharply down.
Having hit a 3-1/2 month high of US78.90c overnight, the kiwi was already declining thanks to another bout of weakness in world equity markets, when the jobs data hit traders' screens.
The first number reported showed unemployment
had fallen to a record low of 3.5 per cent. But it was the second number dealers took note of - that employment, instead of growing 0.4 per cent as economists forecast, actually fell 0.3 per cent.
The kiwi slumped to a low of US76.67c although it then recovered to US77.20c at the close, still well down on yesterday's US78.60c.
BNZ economist Craig Ebert said that while the figures confirmed the labour market was incredibly tight, and thus inflationary, they gave pause for thought as to just how robust economic momentum is at present.
"As such, it hints at a bit of breathing space for the Reserve Bank, albeit with broader inflation risks likely to remain the order of the day for a while yet."
ANZ bank said the failed attempt to break through resistance at the US78.90c level opened the prospect of a correction.
The exhaustive rally yesterday was enough for the NZ dollar this week and it should not make new highs, ANZ said.
Against the Australian dollar the kiwi peaked around A84.15c and fell to A83.50c at the close from A83.97c at the same time yesterday.
The trade weighted index ended on 70.88, down 1.8 per cent from yesterday's 72.17 close.
The US dollar hit a three-month low against the yen and stayed pressured against other currencies as the plunge in US stocks overnight kept intact expectations for another Federal Reserve interest rate cut next month.
The dollar sank to record lows against the euro and a basket of major currencies yesterday after General Motors Corp reported its biggest quarterly net loss ever of US$39 billion ($50.7 billion).
Traders said the yen could gain against the dollar and high-yielding currencies like the kiwi on slides in Asian equities, which would prompt risk-averse investors to unwind carry trades in which they use low-yielding yen to buy higher-yielding currencies and assets.
They are awaiting rate decisions tonight from the European Central Bank and the Bank of England, both of which are expected to keep interest rates steady.
-NZPA
