KEY POINTS:
The New Zealand dollar stabilised in dayside trading today after a sharp dump overnight when equities fell on credit market concerns.
Against the greenback, the kiwi dropped more than a cent, hitting a low of US75.73c. It then picked up and closed little changed from its opening on US76.25c, but well down on yesterday's US77.11c close.
Forex markets were spooked by Wall Street's more than 2 per cent fall. Equities were sold after brokerages downgraded two of the largest US banks, knocking equity prices and sparking fears that fallout from the credit crisis may sap investor appetite for risk.
The kiwi dropped 2 yen between to below 87.20 yen, having earlier been at a two-week high near 89.40 yen. By the close it had recovered a little to be buying 87.60 yen.
The NZ and Australian dollars were among the hardest hit currencies. The two countries have the highest interest rates among developed economies and their currencies are popular targets of carry trades.
In those strategies, investors borrow in low-yielding currencies like the yen then sell them to buy higher-yielding ones in order to profit on the difference. Unwinding those trades benefits the yen.
"Carry trades are being unwound, with the sell-off in global equities weighing on risk appetite," said Omer Esiner, senior market analyst at Ruesch International in Washington.
Westpac currency strategist Michael Gordon said rumours of bank losses were swirling and the rumours were often more damaging than the facts.
The aussie dollar dropped from a 23-year peak against the greenback of US93.40c the previous day to around US91.90c.
The kiwi also gained a little on its trans-Tasman counterpart. After hitting a 14-month low around A82.70c early yesterday afternoon, it strengthened a little to A82.99c.
The trade weighted index closed on 70.61 from 71.32.
Next week, the market will focus on labour cost stats on Monday and employment data later in the week. Mr Gordon said whatever figures finally emerge, the labour market remains extremely tight and "it won't be pointing to an easing in inflation pressures".
Major currency trading came to near standstill today ahead of tomorrow's (NZT) US employment figures.
"If the US jobs data is weaker-than-expected, expectations for a (US) December rate cut will be reheated," said a trader at a Japanese bank.
"If the employment figures are strong, they will boost US stocks and the euro against the dollar," the trader said. That will probably also see a recovery in the kiwi.
The US dollar stayed off an all-time low against the euro, barely changed from US trade at around US$1.4444.
Reuters currency rates
4.45 today 5pm yesterday
NZ dlr/US dlr US76.25c US77.11c
NZ dlr/Aust dlr A82.99c A82.91c
NZ dlr/euro 0.5277 0.5335
NZ dlr/yen 87.60 88.99
NZ dlr/stg 36.65p 37.13p
NZ TWI 70.61 71.32
Australian dollar US91.90c US93.08c
Euro/US dollar 1.4444 1.4462
US dollar/yen 114.90 115.37
- NZPA