KEY POINTS:
The New Zealand dollar slid to a four-month low as a global rout in shares prompted investors to sharply reduce exposure to risky, higher-yielding assets.
From around US76c at yesterday's local close, the kiwi fell to a low of US74.01c. However, it pulled off its low to end the session on US74.58c as the New Zealand sharemarket recovered from nearly 4 per cent down to just 1.5 per cent off.
The kiwi has had 6 per cent sliced off its value in eight days.
"It's trying to rally," said ANZ Bank chief dealer Murray Hindley. All eyes would be on how Wall Street responded when it reopened after the long US holiday weekend, he said.
"It's a risk averse market. It's not a yield story, it's an equities sell-off story."
Following a beating in European equity markets overnight that saw the German market trashed 7 per cent and the London FTSE index 5.5 per cent, Australian and Asian markets plunged 4-5 per cent.
The Japanese yen rose broadly and hit a 2-1/2-year high against the US dollar as the slide in equities markets prompted investors to reduce their exposure to higher-yielding assets.
Westpac Bank dealing room boss in New Zealand, Lloyd Cartwright, said currency trading was surprisingly subdued due to the US holiday.
Most of the action happened overnight.
He said there was an element of contagion from the US into world markets. People had initially expected the credit crunch effects to be largely confined to the US.
"That view is starting to be tested globally. People are now saying this could have some wider ranging global economic impacts. Hence you are seeing a re-rating of some of these currencies. The carry-trade type are definitely suffering."
Mr Cartwright doubted Reserve Bank Governor Alan Bollard will modify his stance at his six weekly review of interest rates on Thursday.
However, if the crisis deepened, pressure to ease monetary policy would intensify on Dr Bollard, who is struggling to get the inflation rate back below the 3 per cent upper end of the target band.
Early today the kiwi briefly dropped below 79 yen for the first time in more than four months. By the close, it had recovered to 79.36 yen from 81.20 yen at 5pm yesterday.
The kiwi held its own against the Australian dollar, which was also hit hard by the equity market sell-off, ending at A86.65c. The trade weighted index ended on 69.50 from 70.40 yesterday.
Reuters currency rates:
5pm today 5pm yesterday
NZ dlr/US dlr US74.58c US75.99c
NZ dlr/Aust dlr A86.65c A86.70c
NZ dlr/euro 0.5173 0.5229
NZ dlr/yen 79.36 81.20
NZ dlr/stg 38.48 38.94p
NZ TWI 69.50 70.40
Australian dollar US86.18c US87.66c
Euro/US dollar 1.4445 1.4538
US dollar/yen 106.28 106.86
- NZPA