The New Zealand dollar fell as US stocks tumbled on concern America is running out of time to avert $US600 billion of tax hikes and spending cuts from January 1 -- the fiscal cliff -- that threaten to stall the world's biggest economy.
The kiwi dollar fell to 81.83USc from 81.89USc at 5pm in Wellington yesterday. The trade-weighted index fell to 73.46 from 73.53.
The greenback rose and stocks on Wall Street fell, sending the S&P 500 Index down 1.1%, after Democratic Senate Majority Leader Harry Reid said an agreement between Democrats and Republicans before the year-end deadline seems unlikely.
Meanwhile, the yen has slipped to its weakest against the US dollar since August 2010 on the Japanese government's declaration that it is determined to weaken its currency.
"There's more and more fear as we get closer to the deadline that this isn't going to pass," says Alex Hill, senior currency strategist at HiFX. "It has been a big losing day for stocks markets so that's added to it."
Mr Hill says the kiwi may trade in a range of 81.50-82.20USc today, with the potential for some volatility amid year-end squaring up in the thin market.
In one sign that investors are getting increasingly nervous about stalemate in Washington, the Chicago Board Options Exchange Market Volatility Index, known as Wall Street's fear gauge, rose to 20.69, the highest since mid-June.
The kiwi dollar traded at ¥70.32 from ¥70.30 and fell to 78.91Ac from 79.07Ac. It fell to €0.6185 from €0.6193 after reports showed an improvement in French consumer confidence and Italian business sentiment.
The local currency traded at 50.86p from 50.80p yesterday.