KEY POINTS:
The New Zealand dollar slumped a cent today against both the US and Australian dollar after a dire jobs report that showed 29,000 jobs were lost in the March quarter.
Hectic trading followed the late morning release of the data as traders bet the Reserve Bank would have to bring forward interest rate cuts.
The kiwi was already on the back foot following a Reserve Bank report yesterday that pointed to risks to the economy and currency.
In quick time, the kiwi fell from US78.20c to US77.10c, while against the aussie it slumped to a 21 month low of A82.16c.
Contrasting with the New Zealand figures, Australia today published stronger than forecast jobs data, emphasising the relatively strength of the two economies.
ANZ Bank chief foreign exchange dealer Murray Hindley said yield traders were preferring Australia to New Zealand, because the prospect there is for rising rates.
"The theme is investors exiting out of New Zealand and looking for other places to park their cash. That's what we are going to see."
He said any rally was likely to be sold into and there was a good chance the kiwi would shortly be in the 76 cent range.
The biggest rally in two years on the New Zealand money market saw two-year yields fall about 20 basis points. That reduces the attraction of the New Zealand dollar for foreign investors.
By the end of trading today, m oney market traders had already priced in 17-18 basis points of a 25 basis point rate cut.
Deutsche Bank head of global markets, Sean Brown, said the market had got well ahead of the Reserve Bank's rhetoric and possibly ahead of itself.
On the trade-weighted index, the New Zealand dollar closed 1.6 per cent lower on 69.44 from 70.59 at 5pm yesterday. The kiwi ended on US77.28c.
Simultaneous to the kiwi action, the euro slid to a two-month low against the US dollar as a sharp drop in euro zone retail sales raised worries about the region's economic outlook and revived expectations for eventual rate cuts.
Traders said mounting signs of slowing growth suggested the European Central Bank may lower rates before the end of the year.
Markets were starting to feel more optimistic about the global credit situation and the United States economy after having priced in the worst-case scenario.
"But negative factors are surfacing for the euro, with recent economic data showing weakness. The market is not yet fully seeing a turnaround, but is starting to incorporate such negative factors bit by bit," one said.
Reuters currency rates:
NZ dlr/US dlr US77.289c US78.99c
NZ dlr/Aust dlr A82.16c A83.26c
NZ dlr/euro 0.5045 0.5092
NZ dlr/yen 80.69 82.72
NZ dlr/stg 38.60p 40.09p
NZ TWI 69.44 70.59
Australian dollar US94.10c US94.82c
Euro/US dollar 1.5318 1.5508
US dollar/yen 104.39 104.73
- NZPA
