Waning optimism about the global economy's recovery prospects has started to play havoc with currencies around the world, with the Japanese yen closing to a five-month high yesterday against the United States dollar.
Investors are seeking safe havens for their money and government debt is looking attractive.
Market participants were increasingly cautious yesterday about possible market intervention by Japanese officials to fight the currency's rapid rise, which is hurting Japanese exporters by eating into profits made overseas when the profits are repatriated.
Few expect immediate action by Japanese authorities as the yen is still far away from the year's peak against the dollar.
In January, the US dollar fell to nearly 87, its weakest level since July 1995.
The dollar's fall yesterday against the yen had been exacerbated by automatic sell orders triggered at around 94.
As the dollar fell below that level, liquidity dried up, steepening the plunge.
Mitsubishi UFJ Securities senior forex trading manager Minoru Shioiri told Reuters the US dollar remained vulnerable but it was unlikely to plunge against the yen, as those who needed to cut long dollar positions had already dumped enough dollars.
The Australian and New Zealand currencies opened down against the yen, with the Australian dollar opening at 72.23 and the kiwi opening at 58.16.
Both transtasman currencies were at the whim of the broader market's demand for US dollars and the yen.
The New Zealand dollar opened slightly down at A80.4c, falling during the day to A80.32.
ABN Amro Craigs broker Chris Timms said an A80c ceiling for the New Zealand dollar seemed likely.
He believed the New Zealand dollar had been trading above fair value against the US currency.
"In our view, the current strength in the NZ dollar has been driven by speculative investors and is unsustainable.
"In our estimation, fair value for the NZ dollar is between the range ofUS50c and US55c.
However, recent policy settings and commentary from the Reserve Bank make it clear that it is determined to see lower longer-term interest rates and a lower currency."
A weaker New Zealand dollar would help correct the country's excessive current account deficit, he said.
BNZ Capital chief economist Tony Alexander said the dollar ended lower against the US currency yesterday in a response to a range of factors.
Fonterra's auction last week prodced another 3% fall in milk powder prices and that had heightened concern, not just about immediate export sector growth, but, more broadly, the strength of the recovery in New Zealand's economy in the coming year.
Dairy contributed about 20% of New Zealand's total receipts of goods and services and in most years came in second only to tourism as an export earner.
The US jobs report was worse than expected so risk aversion lifted anew and the continuation of that through the week propelled sharemarkets lower and prompted some easing of the New Zealand dollar.
"There remains worries about hefty uridashi and euro-kiwi bond maturities this month, though experience shows that nine out of 10 times, worries about these periods of high maturities have been wrong."
Against the greenback, the kiwi still remained "relatively strong" for this point in the country's economic cycle, he said.
I would tend to take advantage of the New Zealand dollar's decline this week against the yen to get some extra hedging on board, while chipping away still at hedging against the Australian dollar for expected receivables in the next couple of years.
I might pull back on very short-term New Zealand dollar-Australian dollar covering given the move back above A80c and the good chance the Australian dollar's recovery - once risk aversion lessens - turns out to be better than ours in the short term.
As ever, nothing obvious springs to mind with regard to the New Zealand dollar hedging against the pound.
I would be inclined to slowly build hedging against the euro and would look for pull-backs bigger than this present one to build hedging against the greenback.
