The New Zealand dollar was on the back foot yesterday as the United States dollar recovered slightly from a massive slump in equity markets on Tuesday.
At 5pm the kiwi traded at US46.52c, compared with Tuesday's close of US46.85c, while the aussie was at US54.40c, off Tuesday's New Zealand close of US54.90c.
ANZ Investment Bank chief currency dealer Murray Hindley said the kiwi was suffering as investors become averse to risk on the back of continuing weakness in the US economy and equities.
While Japan's Nikkei index fell to a 19-year low on Tuesday, in the US the broad Standard & Poor's 500 was down more than 4.0 per cent, representing its biggest one-day loss since the day the market opened post-September 11.
"We've seen a flight back to the US, which has caused a bit of weakness in both the kiwi and aussie. The kiwi's range has been US46.5/75c," Mr Hindley said.
"Overnight you're still going to see continued weakness in these, due to the fact the US economy's still weak, and profit-taking."
He picked the kiwi to trade between US46.40/80c overnight.
Bank of New Zealand currency strategist Stuart Ritson said the New Zealand dollar had a whippy overnight session.
He agreed that volatility in equity markets was leading to selling of aussie and kiwi as investors reduced currency hedges.
"The failure of the New Zealand dollar to once again breach the US47.20/30c resistance moves the short term risks for the local currency to the down side," Mr Ritson said.
In offshore trade, the Reserve Bank of Australia left interest rates unchanged at 4.75 per cent.
Meanwhile, talk revived that the European Central bank could cut its benchmark 3.25 per cent rate before the end of the year after a string of weak economic figures.
The euro-zone Purchasing Manager's Index on Monday showed growth in its manufacturing sector almost ground to a halt in August as doubts about the global economy deterred new orders and prompted companies to slash jobs.
Investors were also spooked by a US manufacturing report on Tuesday which showed production was barely growing, raising the spectre of diminished capital flows to the States.
The euro was propelled to its biggest one-day gain in more than five weeks, with a rise of more than 1.30 per cent to US99.73c. It finished in New Zealand at US99.65c.
On the crosses at 5pm the kiwi was buying A85.52c (85.34 at Tuesday's close), 54.59 yen (55.29), 29.74 pence (30.21), 0.6836 Swiss francs (0.7004), and 0.4670 euro (0.4759).
The aussie was trading at $NZ1.1697 ($NZ1.1717).
On the money market, 90-day bills were at 5.87 per cent (5.87), the trade-weighted index was at 52.86 (53.37) and the monetary conditions index was at minus 499 (minus 450).
The April 2004 bonds were at 5.56 per cent (5.60), the November 2006 bonds were at 5.90 per cent (5.95), and the November 2011 bonds were at 6.12 per cent (6.21).
- NZPA
<i>Currency:</i> Kiwi in a slump as greenback claws back
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