The global markets are anticipating a dive in currency values and share prices following the delayed vote on austerity measures in Cyprus which could result in depositors in the island losing some of their savings.
On Friday, the kiwi dollar dipped 82.29 U.S. cents from 82.82 in late trading in New York, while the trade-weighted index went down to 75.64 from 75.85.
Tokyo shares joined Australian shares which opened 1.56 per cent lower over news of Cyprus's decision to tax bank deposits. At the start of trading, the Nikkei 225 index at the Tokyo Stock Exchange was down 195.51 points to 12,365.44.
The Korea Composite Stock Price Index (KOSPI) also went down 0.8 per cent to close at 1,986.50 points, near a one-month low due to steep foreign selling.
Following the imposition of bank levy on private depositors in Cyprus banks as part of the European Union bailout deal, Cypriots were seen lining up at ATMs, which raised fear of capital flight and threatened to create havoc on a market calm that was settled over the 17-member EU bloc after the European Central Bank promised in September to backstop debts of troubled member-nations.
Cypriot President Nicos Anatasiades defended the bank levy.
"I chose the least painful option, and I bear the political costs for this, in order to limit as much as possible the consequences for the economy and for our fellow Cypriots," The Australian quoted the president's televised address.
Deposits of 100,000 euros will be charged a 9.9 per cent tax, while those below will be charged 6.75 per cent in a bid to raise 10 billion euro bailout for Cyprus in response to a condition set by eurozone members and international creditors on Saturday.
Mr Anastasiades asked all the political parties to ratify the terms of the EU deal when the country's parliament meets on Monday. He acknowledged harder times ahead because of the levy. Parliament needs to ratify the deal before the banks, which had a three-day weekend, reopen on Tuesday or face a bank run.
"The road ahead will not be easy . . . The solution we came to is certainly not the one we wanted, but it's the least painful under the circumstances," he said.
If the MPs would reject the tax, it could result in Cyprus defaulting by May, going into bankruptcy and being kicked out of the common bloc currency.
Cyprus Greens MP Giorgos Perdikis said it is a lose-lose situation because with our without the tax, many Cypriots will withdraw their funds from local banks to evade the levy.
Commenting on the looming financial crisis in Cyprus, Westpac strategist Imre Speizer said, "If this were a template for future bailouts, then that's worrying for any of the larger countries if they have to go down this route. It isn't affecting only the euro, it's affecting risk appetite in general."