The New Zealand dollar fell against the US currency on the back of yesterday's more dovish official cash rate announcement, the US debt ceiling deadlock, and reemerging European sovereign concerns.
The kiwi dollar initially moved higher yesterday on the back of Governor Alan Bollard's comments that the bank was looking to remove the emergency 50-basis point earthquake stimulus by March, but upwards moves were capped by a warning that the high currency was having a negative impact on the economy.
"The Reserve Bank's comments that they were preparing to remove rate cut continued to provide support for kiwi, but statement that the high dollar acting as a drag on economy has seen markets rethink how high rates will go," said Khoon Goh, head of market economics and strategy at ANZ New Zealand.
Demand for the New Zealand dollar was also dented as US the US market continued to slide amid the ongoing debt crisis. The Standard & Poor 500 Index fell 0.3 per cent to 1,300.67 with market bracing for a US government default as policy markets remain deadlocked on lifting the US$14.29 trillion debt ceiling.
Investors' appetite for risk was also sapped after yields rose to an 11-year high at Italy's latest bond auction. The heavily indebted country sold 2.7 billion euro worth of 10-year securities with a yield of 5.77 per cent, the highest level since 2000, according to the Financial Times.
