The dollar started taking on water during heavy economic weather yesterday, hitting a record low of 39.97USc before closing at 40.11USc.
It reacted strongly to news that the Reserve Bank would not move interest rates and to bank governor Don Brash's mention of possible future 'stagflation' - a period of high inflation and low or negative growth.
The trade-weighted index, which measures the dollar against the currencies of New Zealand's five major trading partners, also hit an all-time low of 46.53, recovering slightly by 5 pm yesterday to 46.55.
The New Zealand dollar has lost 44 per cent of its value since November 1996.
One foreign exchange dealer expected it to trade between 39.80USc and 40.10USc during last night, but only if Australia's dollar stayed between 53.25 and 50USc.
He did not see a limit to how low the kiwi could go, saying "Its path is determined by the US economy."
"It's much more a case of the US reversing its strength, which is possible because the US equity markets are looking shaky. It's possible the US dollar will get a bit of a shake-up too.
"Nothing is happening domestically in the Australian or New Zealand markets that will bring a reversal."
Bank of New Zealand foreign exchange strategist Stuart Ritson said the economic future wasn't looking too bright.
"Most conventional measures suggest that it is undervalued, but we can see little reason for the trend to halt or reverse at this point."
Mr Ritson said the American economy was continuing to perform better than expected - which afforded little capital for an investment outpost such as New Zealand, which offered little in terms of extra returns for the additional risks.
The most likely occurrence to make the New Zealand dollar appreciate against the US was a weakening in the American asset markets and currency.
"This is inevitable at some point, but currently both continue to perform well."
The sharemarket wasn't looking much healthier, Mr Ritson said.
New Zealand was "off the global investment radar".
"The continued under-performance of the New Zealand equity market - plus the lack of yield pick up relative to hot money destinations such as South America and South Africa - make it hard to see the dollar appreciating on demand for New Zealand assets."
Today, Dr Brash will deliver a speech to an Auckland business audience explaining why he believes the New Zealand dollar has fallen so far.
The European Central Bank and the Bank of England are due to make rates announcements this week, but are expected to follow the status quo lead of the US Federal Reserve.
- NZPA
<i>Currency:</i> Kiwi pulled below 40USc as market confidence shrinks
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