KEY POINTS:
The kiwi dollar today sharply backed off yesterday's post float high as equity market jitters resurfaced.
Trading was volatile and increasingly jumpy as traders watched the Japanese and Hong Kong sharemarkets drop 2 per cent.
The kiwi nearly revisited its US74.93c high touched yesterday but ended well down on US74.02c.
"We've seen a good old correction," said ANZ chief dealer Murray Hindley.
He said Asian traders were quick to liquidate the so-called carry trades -- borrowing in low interest rate regimes and investing in high ones -- at the first sign of trouble in equity markets.
"If we see continued weakness in some of these bourses we may have another look at last night's lows around US73.80c," he said.
"The kiwi's had such a strong rally it probably did need to have some form of correction," he added.
Housing data from the Real Estate Institute showing even stronger house price inflation -- normally a buy signal for the forex market as it will encourage the Reserve Bank to hike rates -- was largely ignored today.
The kiwi was weak across the board. It dropped to A88.88c from A89.31c at 5pm yesterday, 0.5445 euro from 0.5504, and 87.17 yen from 88.67. The trade weighted index fell to 71.46 from 72.13.
ANZ bank said it expected the kiwi to consolidate heading into the Reserve Bank's interest rate decision next week.
Extensions beyond US75c would be hard fought, and require further weakness in the greenback, and expectations of further rate hikes from the Reserve Bank, it said.
The yen's rebound against high-yielding currencies like the kiwi helped pull the euro and sterling off their highs against the US dollar, but the US currency was still weighed down by expectations for US interest rate cuts while a monetary tightening outlook supported other currencies.
The dollar hovered near a record low against the euro and a 26-year low versus sterling.
"The preference for currencies with high interest rates remains intact, but the yen in the very short term has room to strengthen against high-yielding currencies as investors are getting nervous about current high levels," said Mitsuru Sahara, a senior trader at the Bank of Tokyo-Mitsubishi UFJ.
Reuters currency rates:
5pm today 5pm yesterday
NZ dlr/US dlr US74.02c US74.70c
NZ dlr/Aust dlr A88.88c A89.31c
NZ dlr/euro 0.5445 0.5504
NZ dlr/yen 87.17 88.67
NZ dlr/stg 36.95p 37.20p
NZ TWI 71.46 72.13
Australian dollar US83.30c US83.63c
Euro/US dollar 1.3501 1.3583
US dollar/yen 117.96 118.66
- NZPA