Currency: Dollar plunges to six-year low

Photo / Kenny Rodger

The New Zealand dollar plunged to a six-year low today as investors around the world again sought haven in US dollar assets.

The NZ dollar traded as low as US49.12c today. This was a break below the low of US49.65 on February 2.

BNZ currency strategist Danica Hampton said the currency reached a six-year low and the next level was US48.55c, the November 2002 low.

"The break of the February 2 level suggests we are going to test the downside this week," she said.

The NZ dollar recovered to US49.30c by 5pm, compared with US49.87c on Friday.

"Basically we have seen terrible news from the global backdrop. On Friday there was increasing fears about nationalisation of banks and insurers and US GDP was an awful number," she said.

The ongoing fears about the global financial sector and the global economy had heightened risk fears.

"Currencies like the kiwi were sold," she said.

Westpac said that if the NZ dollar stays below US50c, that level could become a cap for it.

Westpac is also sees a test of A77c on the Australian dollar cross this week. The NZ dollar was A77.90c at 5pm from A78.35c on Friday.

The Reserve Bank of Australia considers its 3.25 per cent cash target rate on Tuesday and a cut of only 25 basis points is expected, if at all.

The Reserve Bank of New Zealand is expected to cut its official cash rate next Thursday as low as 2.5 per cent from the current 3.5 per cent, opening a yield differential up with Australia.

Investors would chase the higher yields in Australia.

A break of A77c on the cross would open the possibility of a fall to A73c, Westpac said.

The NZ dollar slipped against the yen to 48.10 by today's close as the yen rebounded. It was 49.35 at Friday's local close.

The trade weighted index was 51.04 at 5pm from 51.97 on Friday.

Currency rates:

NZ dlr/US dlr US49.30c US50.56c

NZ dlr/Aust dlr A77.90c A78.35c

NZ dlr/euro 0.3922 0.3975

NZ dlr/yen 48.10 49.35

NZ dlr/stg 34.66p 35.42p

NZ TWI 51.04 51.97

Aust dlr/US dlr 63.26c 64.49c

Euro/US dlr 1.2572 1.2720

US dlr/yen 97.55 97.55

- NZPA