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NZ dollar plunges after earthquake

Tuesday 22nd February 2011

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A devastating earthquake in Christchurch today pushed the New Zealand dollar to a nearly two-month low and interest rates plunged as the economy looked set to take another hit.

There were reports of fatalities in the central city, unknown numbers of injuries, and widespread damage to buildings and infrastructure after the shallow 6.3 magnitude quake struck at 12.51pm.

The kiwi lost up to US1.5c on the news, hitting its lowest since late December, and it was likely to sink further tonight in an already negative market, said Westpac currency strategist Imre Speizer.

"Those headlines are fairly sensational, and as the offshore markets come in overnight in Europe and New York I think you'll probably get more selling of kiwi to come on the back of this.

"Economically, this basically puts things back even further in terms of a recovery," he told NZPA.

"The thinking, is what's the effect of this on monetary policy -- it means that interest rates stay on hold even longer," Mr Speizer said.

Benchmark two-year interest rate swaps also slid about 15 basis points.

By 5pm, the kiwi was at US75.06c from US76.25c late yesterday afternoon. Against the Australian dollar, the kiwi was at A74.86c from yesterday's A75.41c.

The currency was also weaker against other major currencies, falling to 0.5525 euro from 0.5582 euro, to 62.55 yen from 63.44 yen, and 46.47 pence from 47.04p.

The trade weighted index eased to 66.98 from 67.79 at 5pm yesterday.

Markets were already negative before the earthquake against the background of bloody civil unrest in Libya. Also today, Moody's cut its outlook on Japan's sovereign credit rating to negative from stable.



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