KEY POINTS:
The New Zealand dollar dipped below 69c against the greenback yesterday as currency traders continued to back the US dollar and Japanese retail investors began bailing out of the kiwi.
It has now shed almost 11 per cent since its last peak of US77c on July 15.
Having opened at US69.80c the kiwi plummeted more than a cent and a half to US68.25c, its lowest level since August 2007. By the end of the session it had recovered to US68.82c.
The kiwi dollar has been drifting down since the Reserve Bank began cutting interest rates last month but Deutsche Bank currency strategist John Horner said the local currency's latest dip was mostly due to souring sentiment toward the global economy.
Although the greenback has suffered as the US economy shows increasing signs of stress, it has gained against other major currencies on the realisation the US malaise is spreading to other economies.
Fears of a widespread slowdown were resulting in "risk aversion" with investors buying the US dollar.
"Clearly the NZ dollar remains one of the preferred ways of expressing that, given the domestic story of an RBNZ that's easing rates assists the move," said Horner.
Furthermore, Horner referred to the considerable long positions in the kiwi from leveraged Japanese retail investors.
With the kiwi yen cross under considerable pressure "there's some concern that capitulation by those traders could lead to a further weakness in the NZ dollar".
That concern appeared to be well founded, with ANZ chief dealer Murray Hindley noting that many "margin guys" were offloading the kiwi yesterday, particularly after the New Zealand dollar fell below 75 yen. Against the Australian dollar, the kiwi gained 0.15c to 79.62c.