Kiwi sinks amid banking fears

Monday 25th January 2010

The New Zealand dollar sank below 71 US cents for the first time this year amid ongoing fears American President Barack Obama’s plan to regulate financial institutions will erode bank profits and sap investors’ appetite for higher-yielding, or riskier, assets.

Stocks on Wall Street declined on Friday as markets continued to feel the ramifications of Obama’s intention to stem banks’ risk-taking, with the Dow Jones Industrial Average falling 2.1%.

French and British officials voiced their support for the proposal, pushing financial stocks in Europe lower. Sentiment for the so-called commodity currencies was also eroded by heightened uncertainty amid declining support in the US Senate for the reappointment of Ben Bernanke as chairman of the Federal Reserve.

“What’s driving this is the banks looking pretty weak after Obama’s comments on Friday, then other officials made noises” that Europe and Britain might follow suit, said Chris Tennent-Brown, economist at Commonwealth Bank of Australia. “We’ve had a pretty decent slide over the last few days, and it’s going to be pretty quiet with Wellington anniversary today.”

The kiwi sank to 70.93 US cents from 71.48 cents on Friday in New York, and declined to 64.77 on the trade-weighted index, from 65.16. It dropped to 63.89 yen from 64.53 yen last week, and fell to 78.71 Australian cents from 78.81 cents. It decreased to 50.13 euro cents from 50.57 cents on Friday, and gained to 44.04 pence from 43.96 pence.

Tennent-Brown said the currency should be well-supported at these levels, and he expects it to push up from here, though thin trading over the next two days has the “potential to knock it around.”

Trading in the South Pacific is also expected to remain light tomorrow, with Australia closed for its national holiday, he said.

The highlight this week will be the Reserve Bank’s announcement on the official cash rate on Thursday. Governor Alan Bollard isn’t expected to adjust the benchmark interest rate, and will probably reaffirm his commitment to hike rates in the middle of the year.

Businesswire.co.nz

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