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Kiwi falls as Wall Street declines amid fears over bank earnings

Friday 15th October 2010

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The New Zealand dollar fell as concerns over a US probe into foreclosure practices weighed on Wall Street and eroded risk appetite.  

The Standard & Poor's 500 Index fell 0.6% as America's 50 state attorneys general began an investigation into the mortgage industry and will focus on allegations that some lenders didn't review documents property or submitted false statements to evict borrowers.

That's ahead of a speech from Federal Reserve chairman Ben Bernanke today which is expected to give markets more guidance on the bank's second round of asset purchases.

The yield on US 10-year Treasuries rose 9.1 basis points to 2.513% as the bonds sold off amid speculation China will let its currency appreciate faster if the Fed doesn't embark on another bout of quantitative easing.

"US Treasuries are very interesting, if they continue to sell off, the US dollar rally will continue and the market will unwind its short positions," said Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia.

"Unless the US dollar rally continues, there's still going to be bidders on dips for the kiwi."

The kiwi fell to 75.61 US cents from 76.31 cents yesterday, and dropped to 66.79 on the trade-weighted index of major trading partners' currencies from 67.24. It declined to 61.54 yen from 61.94 yen yesterday, and decreased to 76.24 Australian cents from 76.95 cents. It slipped to 53.77 euro cents from 54.12 cents yesterday, and was down to 47.28 pence from 47.59 pence.

Kelleher said the currency may trade between 75.40 US cents and 75.90 cents today ahead of Bernanke's speech and American manufacturing and consumer spending data.

Investors' appetite for risk was bolstered during the London session, with the Australian dollar hitting 99.94 US cents after the Monetary Authority of Singapore announced a policy of greater currency appreciation. The kiwi fell to 98.27 Singaporean cents from 98.69 cents yesterday.

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