NZ dollar falls as Goldman Sachs investigation weighs on risk sentiment

Monday 3rd May 2010

The New Zealand dollar fell from a three-month high as the ongoing investigation into investment bank Goldman Sachs Group sapped investors’ appetite for higher yields, while European policymakers shored up a bail-out package for debt-stricken Greece.

Weak bank stocks led Wall Street lower on Friday as Standard & Poor’s downgraded Goldman stock to a ‘sell’ from a ‘hold’ amid news that a criminal probe into the investment bank’s trading activity had begun. The US Securities and Exchange Commission has alleged Goldman failed to disclose securities it sold that were linked to the sub-prime market were chosen by a hedge fund manager who then bet their value would drop. The euro stabilised after Greece announced it would add further austerity measures after Eurozone finance ministers a new rescue package estimated to worth about 120 billion euros.

“The SEC handed over its charges to Federal prosecutors” which saw Goldman’s price slump and dragged down stocks on Wall Street, said Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia. Early optimism “came crashing down when equities fell” and sapped demand for the kiwi, he said.

The kiwi dropped to 72.60 US cents from 72.81 cents on Friday in New York, after rising above 73 cents for the first time since January.

It fell to 67.71 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 67.79 last week, and declined to 68.08 yen from 68.75 yen. It gained to 78.11 Australian cents from 78.11 cents last week, and decreased to 54.44 euro cents from 54.64 cents. It was little changed at 47.43 pence from 47.40 pence last week.

Mike Jones, strategist at Bank of New Zealand, said the currency will find “solid support” around 71.60 US cents with strong commodity prices and the prospect of interest rate hikes underpinning demand for the kiwi.

The People’s Bank of China raised its reserve requirements for banks by 50 basis points, its third increase this year, as policymakers in the world’s third largest economy look to take some heat out of its rapid recovery.

The Australian dollar dropped to 92.25 US cents from 93.19 cents last week after its government flagged a new 40% tax on mining, damping the prospects for mining stocks on the ASX today.

Businesswire.co.nz

Comments from our readers

No comments yet