A Bloomberg News report said the US was considering sanctions in response to China's planned law changes for Hong Kong.
US President Donald Trump has also accused China of deliberately spreading Covid-19. He has said he would make an announcement about his administration's response to China's actions by the end of this week.
Mike Shirley, a dealer at Kiwibank, said the Bloomberg report had been "a good slap in the face with a cold fish" for financial markets.
When Asian markets opened today, concerns over deteriorating relations between the US and China tempered earlier optimism even more, Shirley said.
Then came reports that a transtasman bubble, allowing travel to resume without quarantine requirements between Australia and New Zealand, could be in place for the July school holidays, earlier than expected.
The transtasman safe border group - made up of 11 government agencies, six airports, two airlines, and including health experts and airline, airport and border agency representatives from both Australia and New Zealand - said it hopes to put a proposal to politicians by early June.
Auckland International Airport chief executive Adrian Littlewood said there has been an "avalanche of interest, both domestically, transtasman but also internationally around this as a beacon of hope about getting back to normal."
That inspired a mild rally in the kiwi back above 62 US cents before the US-China jitters reasserted themselves, dragging the currency lower again, Shirley said.
The New Zealand dollar was trading at 93.16 Australian cents at 5pm from 93.23 cents at the same time yesterday. It was at 50.23 British pence from 50.13 pence, at 56.48 euro cents from 56.10 cents, at 66.53 yen from 66.06 yen and at 4.4260 Chinese yuan from 4.3690 yuan.
The bid price on the two-year swap rate closed at 0.1575 per cent from 0.1950 per cent yesterday, while 10-year swaps were at 0.6625 per cent from 0.6525 per cent.
