KEY POINTS:
The kiwi dollar slid today as investors again took flight from risk following the run on the Northern Rock bank in Britain and as rumours swirled closer to home in Australia.
"Risk is back off the table and likely to remain so until this Northern Rock thing washes through," a Wellington dealer said.
Possibly of bigger significance than Northern Rock, Britain's fifth-biggest mortgage lender, is the US Fed's decision on interest rates tomorrow morning NZ time.
Analysts have scaled expectations of a 50 basis point cut to the Fed Funds rate back to 25 points. The wording of the Fed's statement will be crucial.
The kiwi traded a wide range today - from US70.60 at the opening up to US70.74c and back down to US70.06 before closing on US70.33c. That compares with US71.40c at 5pm yesterday.
The kiwi hit its lows when rumours swirled that the Bank of Adelaide might be hit with similar problems that resulted in the run on Northern Rock.
The Reserve Bank of Australia today denied market speculation one or more regional banks had come to it for emergency funding due to the global credit squeeze.
Reserve Bank of Australia Deputy Governor Ric Battellino said: "Those rumours are false", when asked about the speculation. The rumours knocked the Australian dollar lower, and with it the kiwi, and hurt shares of several regional Australian banks.
Most banks also denied the market talk.
Shares in Adelaide Bank, which recently agreed to be acquired by Bendigo Bank fell as much as 8.1 per cent while Bendigo slipped 6.4 per cent.
The currency market, as it has during the credit crisis, again took its lead from the sharemarket. A 1.7 per cent slide in the Nikkei in Japan sent the local equities market down over 1 per cent.
BNZ currency strategist Danica Hampton said the Northern Rock crisis showed the credit crisis had not yet reached its zenith.
Once again NZ dollar market involvement was dominated by short term leveraged funds, which reacted by selling carry trades, including the kiwi dollar.
Ms Hampton said despite firmer commodity prices, neither the NZ nor the Australian dollars had been able to shrug off the fragile nature of speculators' sentiment.
The Australian dollar was trading over US1.5c lower this afternoon than yesterday at US83.14c. The kiwi cross rate still weakened - to A84.59 from A84.70c.
Sterling fell below US$2 as worries about Northern Rock, fanned concerns other financial institutions could be hit by high interbank lending rates.
Northern Rock said it had not yet drawn any funds from an emergency facility it had arranged with the Bank of England. The crisis turned political with the British Government announcing it would guarantee investors' funds.
Tomorrow's expected cut by the Fed would be the first since June 2003, when the central bank cut rates to 1.00 per cent.
Recent data including an unexpected fall in core retail sales, weaker-than-forecast industrial output and a drop in US payrolls have boosted the case for lower US interest rates.
Reuters currency rates:
5pm today 5pm yesterday
NZ dlr/US dlr US70.33c US71.40c
NZ dlr/Aust dlr A84.59 A84.70c
NZ dlr/euro 0.5075 0.5145
NZ dlr/yen 80.85 82.23
NZ dlr/stg 35.36p 35.55p
NZ TWI 67.32 68.09
Australian dollar US83.14c US84.70c
Euro/US dollar 1.3862 1.3878
US dollar/yen 114.94 115.15
- REUTERS