KEY POINTS:
Crude oil prices broke through the psychological level of US$100 ($130.78) a barrel for the first time, pushing investors to safe haven assets and away from risky plays like high-yielding currencies.
US stocks also posted the worst start to the year since 1983, amid rising concerns that the US economy will slip into recession, and this also dimmed the appeal of higher-yielding currencies like the New Zealand dollar.
The kiwi dollar slid more than US1c from its peak of US77.92c on New Year's Eve, but by shortly after 8am it had recovered to US77.34c.
By 5pm it was trading at US77.52c compared with US77.65c at the same time on Monday.
The kiwi finished the day at A87.85c against the Australian dollar (A88.07c on Monday), and 0.5270 against the euro (0.5265 on Monday).
The kiwi advanced to 85.10 yen, dropped as low as 84.32, then rebounded to finish at 84.93 at 5pm, compared with 86.92 at the end of 2007. The cross is volatile and where a lot of speculative investors trade.
One currency strategist predicted that a focus on the prospects of a US recession - bad for both equities and risk "appetite" - meant that both the aussie and the kiwi will underperform, especially against the yen.
But trading volumes were below average because of the holiday week, and this may have exaggerated the fluctuations. Markets in Japan were closed today for a public holiday.
"Higher oil prices led to a slower economy, lower interest rates and higher inflation," said Ron Simpson, director of currency research at Action Economics in Tampa, Florida. "That's not good for any dollar asset class."
Weighing on the US dollar, the Institute for Supply Management index of US factory activity fell in December, dipping towards levels associated with US recessions.
- NZPA
