KEY POINTS:
The New Zealand dollar spiked to a six-week high of US74.86c today but quickly retreated a cent as the credit crunch bogie reappeared.
The kiwi, which had risen on general US weakness, closed on US73.85c compared with US74.42c at a similar time yesterday.
The credit worry barometer was raised again by a British newspaper report that Britain's deposit protection scheme holds only A3;4.4 million ($12 million) to protect the country's bank deposits, far smaller than the US$49 billion fund at the US Federal Deposit Insurance Corporation.
The news raised worries over the stability of the British financial system after depositors had rushed to withdraw savings from troubled mortgage bank Northern Rock.
Lingering credit worries restrained the appetite for risk, prompting investors to cut back on carry trades in which a low-yielding currency is used to fund investment in high-yielding currencies like the kiwi dollar.
"We think that bad news related to subprime mortgage loans is likely to surface more towards the year-end, and will keep the dollar and sterling under pressure," said Masafumi Yamamoto, currency economist at Nikko Citigroup.
ANZ noted that sentiment would turn on a dime on further negative credit news.
The NZ dollar weakened across the board. It fell to A85.47c from A86.10c at 8am today and A85.87c at 5pm yesterday.
ANZ said that with commodities continuing to rise and despite the winter wheat crop in Australia looking shaky due to drought, the aussie looked the stronger of the two currencies.
Against the yen, the kiwi fell to 84.83 from 85.63 at 5pm yesterday, while the trade weighted index fell to 69.86 from 70.27.
Analysts said the US dollar may continue its broad slide this week amid fears a deepening housing slump could rein in economic growth and trigger more cuts in US interest rates.
Investors are worried that weak economic reports will push the Federal Reserve to follow last week's 50 basis-point rate cut with more policy easing, further eroding the dollar's yield appeal over other currencies.
Reuters currency rates
4.30pm today 5pm yesterday
NZ dlr/US dlr US73.85c US74.42c
NZ dlr/Aust dlr A85.47c A85.87c
NZ dlr/euro 0.52.51 0.5278
NZ dlr/yen 84.83 85.63
NZ dlr/stg 36.72p 36.75p
NZ TWI 69.86 70.27
Australian dollar US86.49c US86.67c
Euro/US dollar 1.4078 1.4101
US dollar/yen 114.78 115.07
- NZPA