The New Zealand dollar plunged to its lowest level since September last year after the yen soared to a record high against the greenback.
Shortly after 10am the NZ dollar fell from around US72.80c to around US71.25c within an hour, according to Reuters data. It recovered to be US72.23c at
5pm, down from US73.22c at the same time yesterday.
"There was just a mass liquidation of yen crosses late in the morning," said ANZ Foreign Exchange Manager Murray Hindley.
"It was a pretty hectic morning. We haven't seen this kind of volatility since 2008 when the global financial crisis was evident," he said.
The yen soared to a record high against the dollar as Japanese stocks drooped on Thursday, erasing a portion of the gains from the day before as the country struggled to contain a post-earthquake nuclear crisis, Associated Press reported.
The dollar was trading at 79.18 yen in Asia after plunging to 76.53 yen late Wednesday in New York - far below the previous all-time low of 79.75 yen set April 1995.
Major natural disasters like earthquakes tends to bolster the yen because investors expect the Japanese public and insurance companies to buy back their home currency in order to fund the country's reconstruction, increasing demand for the yen.
"It's mayhem out there," said one trader at an Australian bank in Sydney as liquidity evaporated and bids were pulled, Reuters reported. "The yen's been moving a big figure a second on occasions. A lot of people are crying out for the central banks to step in."
ANZ economist Sharon Zollner said the low level of the US dollar against the yen had meant a large number of stop loss buyers of the yen had needed to get out of short yen positions against everything, including the NZ dollar.
The kiwi dropped to a 22-1/2-month low against the Japanese currency just above 55 yen at about 11am from around 58 yen at 10am and was 57.08 yen at 5pm.
The NZ dollar was at A73.68c at 5pm from A73.84c yesterday and at 0.5188 euro from 0.5242 yesterday.
The trade weighted index fell to 63.88 from 64.76 yesterday.
- NZPA
