KEY POINTS:
The New Zealand dollar resumed its plunge in late trading today after another volcanic session where it traded a near three cent range.
"Fear is still in the markets and volatility in the markets sky rocketed. As a result people are ploughing out of risky assets," said Kathy Lien, chief strategist with Forex Capital Markets in New York.
"That's really causing a whole meltdown in the currency market."
Yesterday, the kiwi plunged US3c in its biggest one-day fall for 21 years.
The kiwi closed the local session on US67.15c - the lowest close this year and since November. It hit a low of US66.95c just before the close.
If anything, the kiwi's weakness against the yen was even more pronounced as it underwent a 5 per cent dive to an 11-month low.
The latest plunge was triggered by a 3 per cent fall on Japan's sharemarket.
Japanese and other investors have turned risk averse in the wake of the US credit crunch that has sparked general turbulence on world markets.
Having initially taken its cue from Wall Street, which recovered from a hefty morning dump, the kiwi rebounded to over US70c this morning. But after the Japanese sharemarket opened and the local sharemarket turned increasingly negative, kiwi traders resumed selling.
Dealers said there was "carnage" in trading rooms as a result of the chaotic action of the last few days.
Just a little more than three weeks ago the NZ dollar was at a post-float high above US81c. It has dropped around 10 per cent this week in one of its worst ever performances.
The biggest winner on world markets for now is the Japanese currency.
For the kiwi, that meant a fall from above 84.50 yen early yesterday to around 75.3 at 5pm.
The kiwi is likely to face another torrid session on Monday morning when more than $2.5 billion of eurokiwi and uridashi bonds are due to mature.
"The significant concentration of debt maturing in the next couple of weeks suggests some downside risks to the NZ dollar if Japanese retail appetite starts to falter," BNZ currency stategist Danica Hampton said.
The yen hit a 14-month high against the US dollar and posted its biggest gain in at least seven years against the Australian dollar, as the latest sign of trouble in the US mortgage market led investors to bail out of risky trades financed in the Japanese currency.
Ms Lien said the size of the moves by the yen against other currencies was due to the worsening liquidity crisis in the US, amid worries about spreading US subprime mortgage problems.
Investors were wanting to liquidate risky positions, such as the new Zealand dollar, and invest in safe currency assets in Japan and the US, Ms Lien said.
"This is not going to stop until the stock market stops falling, and the stock market is not going to stop falling until people feel that the mortgage crisis is calming down," she added.
Against the Australian dollar, the kiwi strengthened to A85.97c from A85.60c. while the trade-weighted index dropped to 65.36 - its lowest level in a year and down 14 per cent from its 76.16 peak on July 23.
Reuters currency rates:
5pm today 5pm yesterday
NZ dlr/US dlr US67.15c US69.02c
NZ dlr/Aust dlr A85.97c A85.60c
NZ dlr/euro 0.5005 0.5157
NZ dlr/yen 75.30 79.04
NZ dlr/stg 33.95p 34.74p
NZ TWI 65.35 67.04
Australian dollar US78.12c US80.65c
Euro/US dollar 1.3411 1.3426
US dollar/yen 112.12 116.03
- NZPA