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

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 $US14 billion claim against the financial institution could have wider implications for the sector.

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

The Dow Jones Industrial Average fell 1% 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% to 14.45, and risk-sensitive currencies such as the Australian, the 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 94.96Ac from 94.75Ac  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 from ¥73.95. It dropped to 64.65 euro cents from 65 cents and was little changed at 55.92 British pence from 56.02 pence.

(BusinessDesk)

Click the hamburger symbol top right of our homepage to access the Rich List 2016 and other sections.