NZ dollar falls as fears over bank stocks weigh on US equities

Friday 30th September 2016

The New Zealand dollar followed stocks on Wall Street lower as several hedge funds scaled back their business with Deutsche Bank, triggering fears the US Department of Justice's US$14 billion claim against the financial institution could have wider implications for the sector.

The kiwi fell to 72.56 US cents at 8am in Wellington from 72.90 cents yesterday. The trade-weighted index declined to 77.06 from 77.26.

The Dow Jones Industrial Average fell 1 percent as financial stocks including Goldman Sachs declined after Bloomberg reported a number of funds that clear derivatives trades with Deutsche Bank withdrew some excess cash and positions held with the lender, a sign of counterparties’ mounting concerns about doing business with Europe’s largest investment bank. The US justice department proposed settlement against Deutsche Bank over an investigation into residential mortgage-backed securities is almost as much as the bank's market value.

The Chicago Options Board Exchange's Volatility Index, known as Wall Street's fear gauge, spiked 17 percent to 14.45, and risk-sensitive currencies such as the Australian, kiwi, and Canadian dollars fell.

"A risk-off tone developed just after 5:30 this morning when reports came through of some counterparties that deal with Deutsche Bank withdrawing some excess cash and positions held at the bank, a reflection of DB’s perceived credit risk," Bank of New Zealand currency strategist Jason Wong said in a note. "This has seen commodity currencies lose some ground and support for safe-haven currencies."

Commodity-linked currencies got a boost yesterday when oil prices rose on an announcement by the Organisation of the Petroleum Exporting Countries that they would reduce production, but have since retraced those gains. The kiwi increased to 94.96 Australian cents from 94.75 cents yesterday.

Local data today include August building consents at 10.45am.

The local currency fell to 4.8368 Chinese yuan from 4.8658 yuan yesterday and declined to 73.34 yen from 73.95 yen. It dropped to 64.65 euro cents from 65 cents and was little changed at 55.92 British pence from 56.02 pence.

BusinessDesk.co.nz

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