By ELLEN READ
The New Zealand dollar continued to lose ground after Thursday's news of possible currency intervention and a reduced likelihood of interest rate increase.
It fell from Thursday's local close of 65.64USc during the night as overseas markets reacted to the intervention news.
Although the Madrid bombings weakened the US dollar - because of renewed concerns about global terrorism - the kiwi kept falling yesterday because of local influences, and was at 63.74USc at 5pm.
That is a fall of almost 2USc in one day, after a similar drop on Thursday.
Westpac senior currency strategist Johnathan Bayley said the kiwi might have fallen further if not for the Spain attack.
"The US dollar has been weak as hell on the Madrid bombings," he said. "It's the weak US dollar that's stopped the kiwi from totally collapsing."
ASB chief economist Anthony Byett said news that the Reserve Bank is seeking Government approval for a more active role in the currency market was driving the kiwi.
"The RBNZ has always retained the right to intervene in the local currency market but had envisaged this happening only when the local market was not functioning well," he said.
BNZ currency strategist Sue Trinh said the bank's move had affected sentiment.
"Just the talk of intervention, regardless of whether it comes to fruition ... spooks a lot investors," she said.
Byett said currency intervention, including possibly a concerted global effort, was "possible, indeed probable, over the next six months" but would probably occur when the US dollar suffers another extreme depreciation and the New Zealand dollar reaches new highs, above 72USc.
The current currency movements should be viewed as volatility rather than any major turning point, he said.
That view is shared by others. Bets are off as to how far the kiwi will dip in the current move, but forecasts remaining for it to top the 71USc again during this cycle.
"For now, you're seeing the kiwi under intense pressure, but you're seeing that across the board with the euro and the aussie," said Trinh.
Yesterday's bomb attacks in Madrid had spooked international forex markets, she said.
"You're seeing an increase in global risk aversion, that never bodes well for peripheral currencies like the New Zealand dollar."
Intervention plan, bombing take their toll on NZ dollar
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