Dollar falls as SCF deadline looms

The New Zealand dollar fell as the deadline arrives for South Canterbury Finance, which is trying to stave off a collapse which would cost the government some $600 million.

The country's second-biggest finance company has until the end of the day to announce a capital injection which would satisfy its trustee, and avoid calling on the government to bail-out distressed investors under the retail deposit guarantee.

A collapse would weigh on investors' optimism over the state of New Zealand's economy, with the financier being a large lender to agriculture sector in the South Island. Global sentiment was muted in the London and New York sessions, with stocks on Wall Street falling amid disappointment Federal Reserve chairman Ben Bernanke didn't announce extra quantitative easing in his speech to the central bankers' summit on Friday.

"The main think today is any announcement regarding South Canterbury Finance, which has until the end of the day to come up with a plan, and we'll see whether the government will stump up with some cash or not," said Khoon Goh, head of market economics and strategy at ANZ New Zealand.

"Risk aversion is back and we're seeing risk assets being sold and save haven demand flowing into U.S. government bonds," which is keeping the kiwi under pressure, he said.

The kiwi dropped to 70.68 U.S. cents from 70.98 cents yesterday, and was little changed at 66.30 on the trade-weighted index of major trading partners' currencies from 66.36.

It fell to 59.77 yen from 60.12 yen yesterday, and rose to 79.22 Australian cents from 78.95 cents. It was little changed at 55.80 euro cents from 66.78 cents yesterday, and rose to 45.70 pence from 45.58 pence.

Goh said the currency may trade between 70.55 U.S. cents and
71.25 cents today, as the South Canterbury decision hangs over it, ahead of Australian data this afternoon.

Data across the Tasman will likely show retail spending and building approvals are still subdued in Australia, though tomorrow's second-quarter gross domestic product release is forecast to show the Australian economy grew 0.9 per cent in the three months through June.

Goh said Australia's economy is still in reasonably good shape, and is being driven by the mining sector rather than consumer spending and housing.

The Bank of Japan boosted its liquidity facility by 10 trillion yen yesterday after holding an emergency meeting to counter the strength of the yen. The move disappointed the markets, with the currency strengthening to 84.58 per U.S. dollar, near a 15-year high