KEY POINTS:
The New Zealand dollar fell below US75c today as investors fled risk, and it has now fallen 3.6 per cent since Friday's close.
At 8am it was buying US74.84c compared with yesterday's close of US75.43c and US77.68c on Friday.
The fall against the yen has been even more severe -- down 5.8 per cent from Friday. It is now buying 82.32 compared with 83.03 yesterday and 87.40 on Friday.
The Australian dollar was hit even harder. It was down to US88.23c from US89.50c yesterday. It plummeted around 3 US cents in the New York session. The kiwi cross rate rose to A84.80c from A84.29c.
ANZ bank said in its briefing note to clients today that market indigestion delivered a bad case of the runs yesterday and the rout continued overnight.
It said there was large scale carry trade exiting as risk aversion dominated.
Increased volatility and continued credit concerns relating to the subprime mortgage crisis saw investors reduce holdings of perceived riskier assets.
The Canadian dollar was hit hardest, experiencing its biggest one-day decline against the USD since 1971.
"Tensions remain high that the worst of the credit dislocation that plagued markets over July and August has not passed and predictions from some analysts that losses from the falling value of subprime mortgage assets may reach US$400 billion ($531 billion) globally is contributing to the concerns," ANZ said.
Adding to the woes, Asian stock markets tumbled yesterday, with the Nikkei falling to its lowest level for 2007 and the Shanghai market plunging 4 per cent.
ANZ Investment Bank senior dealer Mark Elliott said trading was "very nervous" due to the stock markets jumpiness.
BNZ's Danica Hampton said the kiwi was unlikely to benefit from a widening gap between the high NZ interest rates and falling US rates, while risk appetite remained muted and global equities remained weak.
Before Monday, the US dollar had been falling steadily on expectations the Federal Reserve would cut benchmark interest rates to stave off a recession potentially brought on by weakness in the housing sector.
However, a sudden pullout from carry trades has been a signal to dealers to book profits now, especially with bets against the dollar so stretched.
"Our metaphor has been that the dollar's 'boat' has been populated to the bearish side so heavily that it was 'listing' more than merely awkwardly, and that it was due to capsize," said Dennis Gartman, independent investor, in a daily note to clients.
- NZPA