Kiwi dollar tumbles overnight

The decline of the New Zealand dollar continued overnight, after starting yesterday morning when data showed easing inflation pressures.

The impact of the inflation figures, which cooled speculation the Reserve Bank may soon raise interest rates, gained added impetus from reports that some Chinese banks have been instructed to curb lending.

While the news from China weighed on commodity currencies, it gave further support to the greenback which was also buoyed by expectations the election of a Republican to a US Senate seat in Massachusetts might see the government rein in spending and cut the fiscal deficit.

The US dollar reached a one-month high against a basket of currencies, and a five-month high against the euro as Greek bonds tumbled over worries about the Greek government's finances, raising concerns about the country's ability to finance its ballooning budget deficit.

By 8am today the NZ dollar was buying US71.93c, 1c down from its level at 5pm and 2c down from its level just before the inflation data was released yesterday when it was near the US74c level. At one point the kiwi was down to its lowest level this year, according to Reuters data, at US71.82c.

BNZ Capital strategist Mike Jones said the NZ dollar had been hit by a perfect storm of negative news in the 24 hours to 8am. It had been the weakest performing currency among the majors, falling almost 3 per cent - the largest daily drop since November.

After the soft inflation data, the headlines suggesting Chinese banks had been told to halt new lending for the rest of January had the effect of "kicking the currency when it was down", said Jones.

Overnight, risk aversion also spiked, with global equity markets falling between 1.5 per cent and 3 per cent, weighed down by the Chinese news and some relatively lacklustre earnings reports.

The NZ dollar also reached its lowest point against the Japanese currency this year, dropping from 66.56 yen at 5pm to 65.39 yen at its low point, although by the local open the kiwi had regained some ground to 65.60 yen.

Against the Australian dollar, the kiwi dropped to a six-week low of A78.80c, but by 8am was back to A79.21c from A79.47c at the local close. The trade weighted index was 65.64 at 8am from 66.34 at 5pm.

ANZ bank said that with weaker inflation pressures in this country contradicting the likely scenario in Australia, offshore investors could do nothing more than sell NZ dollars and buy the Australian dollar.

Broadly, ANZ said key support for the NZ dollar at US71.85c could come under pressure throughout today's trading with the release of November retail sales figures at 10.45am.

- NZPA