What could have caused the high yield currencies (i.e. AUD, NZD, etc) to fall drastically in last week?

Answer 1

more clearly ...

high yields were related to perceived higher risks.
the present fun in the fixed income markets is happening because risk is being repriced higher. when risk is repriced higher, people buy less of it since their capital is (relatively) fixed.

so the 'carry trade' deals are unwinding. there were when corps and other credit worthy organizations borrowed in Japan at very cheap rates, exchanged the yen for other currencies, and invested the results in places like NZ.

Since the price of the inherent NZ risk is suddenly higher, these deals are being undone. The yen is rising as a result and the other currencies involved are falling.


does this help?

Answer 2

Headlines

Immigration Growth Rate Slides to 17-month Low in July

New Zealand's annual immigration growth fell to a 17-month low in July, suggesting demand for houses and consumer goods may cool. The number of permanent migrant arrivals exceeded departures by 8,970 in the year ended July 31, the lowest since February last year, Statistics New Zealand said in a report released today in Wellington.
http://www.bloomberg.com/apps/news?pid=20601081&sid=awTzGSVzGLSU&refer=australia
Source: Bloomberg

Kiwi Finance Companies Fall Prey to US Subprime Contagion

More finance companies are in danger of failing as investors shy away from them, analysts warned last night. Nathans Finance yesterday became the latest casualty, and is teetering on the brink of collapse.
http://www.nzherald.co.nz/section/3/story.cfm?c_id=3&objectid=10458963
Source: The New Zealand Herald

Performance of Service Index Drops For Second Straight Month in July

The fourth monthly Business NZ Performance of Service Index (PSI) stood at 55.2 for July. The result was lower than the previous month for a second consecutive time, although still displaying healthy expansion. Weather conditions tended to be the biggest factor regarding negative comments by respondents for July, with concerns also raised about the cost of money due to higher interest rates.
http://www.businessnz.org.nz/file/1268/July%20PSI%202007.doc
Source: Business NZ


Market Activity

Currency Market - NZD:
The US Fed?s attempt to ‘mitigate? damage to turbulent equity markets stemmed the nosedive in the Kiwi dollar, after the NZDUSD pair weathered the steepest fall since the October 1987 stock market crash. Risk-aversion was side-stepped at the beginning of the trading week, as a modest rebound in carry trades attracted investors to the yield advantage of the New Zealand dollar, and the NZDUSD pair crossed past 0.7000 USD during the New York session. The Kiwi dollar faced downside event risk as NZD $2.5 billion worth of New Zealand?s global retail bonds matured today, but the currency remained resilient despite speculation that uridashi and eurokiwi bonds may not be rolled over or replaced by other NZD-denominated assets. The trade-weighted index of the Kiwi dollar rose to 67.15 from 65.35. However, the stabilization in the New Zealand dollar after the rapid nosedive may be short-lived since one-month implied volatility on currency options rose to 24 percent, suggesting the global appetite for carry trades is likely to remain diminished.

Answer 3

It is related to the stock market losses in the Dow Jones, NYSE and NASDAQ, which are related to the number of bad below prime real estate loans, and foreclosures.

Answer 4

They are all tied to the US$ so when that is under pressure as it now is, all those that follow are burnt too.