KEY POINTS:
The New Zealand dollar dived nearly a cent today after the US Federal Reserve lowered interest rates less than many in the market had hoped, putting the heat back on risk assets like the kiwi.
Stocks and carry trades took a hit from the Fed's more cautious loosening of policy as market players unwound short positions in the low-yielding Japanese currency used to fund purchases of higher-yielding assets.
The Fed cut the bellwether federal funds rate target by a quarter-percentage point down to 4.25 per cent and that prompted a 2 per cent selloff in US stocks as investors shied from risk.
Because the New Zealand dollar has been treated as a proxy for risk, it was dumped - down to US77.45c mid-morning from US78.35c at 5pm yesterday. It recovered to US77.90c by the close.
ANZ Institutional bank chief dealer Murray Hindley said the market was looking for a more aggressive rate cut and was disappointed.
The kiwi and Australian dollars were sold heavily but when the Asian markets reopened they partially recovered despite the Nikkei share index being down 1.8 per cent.
The kiwi gained a little on the aussie - to A88.90c from A88.85c.
While the Fed action was widely expected, some economists had thought the Fed might offer a bolder half-point reduction in the rate, which governs overnight lending between banks.
Overnight, the NZ dollar had hit near five-months highs against the greenback before sellers emerged.
ANZ said solid New Zealand third quarter terms of trade data yesterday had countered weaker Real Estate Institute figures later in the day.
Tohru Sasaki, chief foreign exchange strategist for Japan at JPMorgan Chase in Tokyo, said stock markets were likely to stay volatile as the year winds down and could prompt a further unwind of carry trades, suggesting further pressure on the kiwi.
"In broad terms, there are still huge carry trades," Mr Sasaki said. "If markets are volatile and stock markets decline, there is more room for the yen to appreciate."
Reuters currency rates:
5pm today 5pm yesterday
NZ dlr/US dlr US77.90c US78.35c
NZ dlr/Aust dlr A88.90c A88.85c
NZ dlr/euro 0.5315 0.5320
NZ dlr/yen 86.35 87.58
NZ dlr/stg 38.25p 38.28p
NZ TWI 72.18 72.39
Australian dollar US87.60c US88.86c
Euro/US dollar 1.4660 1.4724
US dollar/yen 110.82 111.69
- NZPA