Commodity currencies including the New Zealand dollar fell after China said it would tighten banks' reserve requirements, raising concerns that Chinese demand could fall and slow global economic recovery.
China's central bank surprised global markets with a statement early today (NZT) that it would raise the reserve requirement ratio by a half-percentage point, effective next week, in the clearest sign yet of monetary policy tightening.
Commodity-linked currencies -- including the Australian, NZ and Canadian dollars -- all hit session lows against the United States dollar, following a sell-off in gold prices. The commodity currencies also tumbled against the Japanese yen.
After a volatile night, when it bounced around in a range between about US74.30c and US73.65c, the NZ dollar was buying US73.85c at 8am.
ANZ bank said the Chinese announcement that it was raising reserve requirements dominated action overnight.
Market reaction was as expected, with the Australian dollar under pressure along with commodities in general.
"But as the dust settles, attention will centre on a simple question: is this a sign of the bank getting ahead of the curve, and thereby good for risk, or negative and in line with the immediate knee-jerk reaction?"
Time would tell and the NZ and Australian dollars had appeared somewhat resilient to the news so far, ANZ said around 8am.
Against the yen the NZ dollar was in a sustained decline for most of the night, falling from around 68.40 yen about 8pm to a low shortly after 7am around 66.90, wiping out gains of the past week. By 8am the kiwi had staged a small recovery, lifting to 67.19 yen.
The NZ dollar also fell to 0.5096 euro at the local open from 0.5111 at 5pm, but rose against the aussie, reaching a week high, and by 8am was at A80.29c from A79.88c at the local close. The trade weighted index dropped to 66.74 at 8am from 66.96 at 5pm.