KEY POINTS:
The New Zealand dollar was smashed down over one and a half US cents today in what currency traders said was a market meltdown.
"It's just a meltdown," said a breathless Auckland dealer, who, like other traders, had little time between deals to talk. "The whole thing is just a basket case out here. It's about as bad as I've seen it in a long time of trading.
"I've not sure what's going to save it but I would suggest the markets are pricing in a Fed cut sooner rather than later if this continues."
The Reserve Bank of New Zealand said it was business as usual and was not expected to change its stance yet.
"They are getting what they want (a lower dollar), but they are getting it in a way they may not have necessarily wanted," the Auckland dealer said.
The New Zealand dollar has now plunged 12 per cent in three weeks in one of its most precipitous falls since floating in 1985.
It ended a momentous local session on US71.65c compared with yesterday's US73.20c close. It was a four month low for the kiwi.
Further turmoil on equity markets and the credit crunch arising from concern about the US subprime mortgage market were causing investors to flee "risky" New Zealand dollar assets. "High-yielders are vulnerable to fall on any bad news," said Shogo Nagaya, forex manager at Nomura Securities.
Worries about a credit squeeze simmered on news that Canadian structured finance firm Coventree Inc had been affected by the subprime turmoil, while Sentinel Management Group Inc in the United States sought to prevent clients from withdrawing cash from investments.
Signs that the days of easy credit are ending have frozen demand for risky positions such as the yen carry trade that has underpinned the kiwi, and analysts said high-yielding currencies that have benefited from the strategy would stay under selling pressure.
The New Zealand sharemarket dropped 1.6 per cent as did Japan's Nikkei index, mirroring the fall of the US market.
The kiwi was pummelled against all currencies. It fell to A86.65c from A87.24 against the Australian dollar and 84.01 yen from 86.33.
The trade-weighted index ended on 69.35 against 70.51.
The ANZ bank said the kiwi selling had been relentless. Although global factors were not helping, yesterday's retail sales data showing a 0.6 per cent in the June quarter showed the domestic economy was struggling, alongside a negative global backdrop.
Reuters currency rates:
5pm today 5pm yesterday
NZ dlr/US dlr US71.65c US73.20c
NZ dlr/Aust dlr A86.65c A87.24c
NZ dlr/euro 0.5309 0.5378
NZ dlr/yen 84.01 86.33
NZ dlr/stg 36.01p 36.40p
NZ TWI 69.35 70.51
Australian dollar US82.84c US83.92c
Euro/US dollar 1.3507 1.3616
US dollar/yen 117.18 118.89
- NZPA