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Kiwi falls as Wall Street in glum mood

Wednesday 8th September 2010

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The New Zealand dollar fell back under 72 US cents as Wall Street traders returned from their holiday in a downbeat mood amid the reignited fears about the state of Europe's financial sector.

The Dow Jones Industrial Average fell 1% as questions were raised about the robustness of the European bank stress tests in July in a Wall Street Journal article, which said the review understated lenders' holdings in potentially risky government debt.

Adding to the fears, Germany's banking association said the country's 10 biggest banks might need 105 billion euros in new capital to meet new regulatory rules for lenders to prevent future financial crises.

US markets were closed on Monday for a public holiday, and many traders have returned from their summer breaks in what's traditionally a weak month for so-called risk assets.

There are concerns about "European growth off the back" of the reports on the stress tests, said Alex Sinton, senior dealer at ANZ New Zealand. "We've had a good start to September, and have given back some of those gains, albeit not too much of them."

The kiwi fell to 71.95 US cents from 72.08 cents yesterday, and edged down to 67.09 on the trade-weighted index of major trading partners' currencies from 67.13. It dropped to 60.27 yen from 60.45 yen yesterday, and declined to 78.98 Australian cents from 79.16 cents. It rose to 56.67 euro cents from 56.49 cents yesterday, and was little changed at 46.81 pence from 46.87 pence.

Sinton said the currency may trade between 71.80 US cents and 72.20 cents today, and will probably lean towards the downside as Asian equity markets follow the Northern Hemisphere's lead.

The Australian dollar held above 91 US cents after Prime Minister Julia Gillard secured the support of two independent MPs and to take the Federal election. The uncertainty over the state of major policies such as the mining super tax and the national broadband network had kept markets nervous about the state of the so-called ‘lucky country'.

Prior to that, traders had been a little downbeat on the currency after the Reserve Bank of Australia held the target cash rate at 4.5% and was pessimistic about global growth prospects for the second half of the year.

Bank of Japan Governor Masaaki Shirakawa held the benchmark interest rate at 0.1%, and ruled out intervening in the yen's 15-year highs, saying "monetary authorities are unable to control currency rates freely".

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