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NZ dollar falls for second day as Obama plan, China inflation sap risk appetite

Friday 22nd January 2010

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The New Zealand dollar sank for the second day after U.S. President Barack Obama flagged more regulations for banks’ trading operations, driving down shares and sapping demand for riskier, or higher-yielding assets.

President Obama announced a plan to limit banks’ trading activities, including a possible ban on proprietary trading, where they wouldn’t be able to use their own capital for hedge fund or private equity investment or for trading unless it’s connected to their clients. The proposal sapped sentiment on Wall Street, with the Dow Jones Industrial Average down 2%. The kiwi also fell after Chinese inflation accelerated to a higher-than-expected annual rate of 1.9% in December, stoking concern Beijing will take steps to cool an economy that has underpinned the global recovery.

“Chinese authorities are more proactive in trying to slow the economy and now we know, quite clearly, there’s going to be a raft of new regulations around financial institutions” in the U.S., said Khoon Goh, senior markets economist at ANZ National Bank. “You can’t read too much into the price action over Christmas and New Year’s when the C-team was on – the A-team’s back from holiday and we’re getting clear signs of what’s going on.”

The kiwi sank to 71.35 U.S. cents from 71.87 cents yesterday, and dropped to 64.98 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 65.74. It tumbled to 64.20 yen from 65.88 yen yesterday, and declined to 78.82 Australian cents from 78.90 cents. It decreased to 50.46 euro cents from 51.07 cents yesterday, and fell to 43.88 pence from 44.42 pence.

Goh said the currency may trade between 70.95 U.S. cents and 71.85 cents today, and will take its cues from Asian markets with a lack of domestic data today.

The kiwi sank to a six-week low against its Australian counterpart after the Henry tax review, Australia’s equivalent of the Victoria University-led Tax Working Group, recommended a mining tax. The Australian dollar slumped to 90.34 U.S. cents from 91.05 cents yesterday.

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