The New Zealand dollar dropped almost 2 US cents amid speculation that France would be the next country to have its credit rating downgraded, weighing on equity markets and growth assets.
The New Zealand dollar recently traded at 81.23 US cents, down from 83.50 cents yesterday, and fell to 70.46 on a trade weighted basis from 71.97.
Rumours that France would be the next country to be downgraded were rapidly quashed after ratings agencies Standard & Poor's and Moody's Investors Service reaffirmed the country's triple-A credit rating on stable outlook.
That was not enough to soothe nervous investors, who then shifted their focus to French bank Societe Generale, with the company's stock falling as much as 23 per cent before paring losses on fears that it is overexposed to Greek sovereign debt.
The doubts about the viability of French banks triggered a pullback in risk appetites on global equity markets, with the Standard & Poor's 500 Index falling 3.5 per cent to 1,130.09, and Europe's Stoxx 600 dropping 3.8 per cent to 223.50. The sharp shift to risk-off mode saw demand for growth-linked assets like the kiwi and Australian dollar fall.
