NZ dollar falls on US recovery fears

The New Zealand dollar extended its decline to a three-week low as concern America's economic recovery is waning sapped investors' appetite for riskier, or higher-yielding, assets, and pushed stocks on Wall Street lower.

The Standard & Poor's 500 index dropped 1 per cent, rounding out a 12 per cent decline in the quarter, the biggest since the collapse of Lehman Brothers. The kiwi dollar dropped below 69 US cents for the first time since June 10.

Federal Reserve Atlanta President Dennis Lockhart said there's a small risk of deflation in the world's biggest economy. Gloom weighed on Wall Street even after the European Central Bank reported less demand for its three-month liquidity facility, indicating Europe's lenders are less reliant on the regulator's funding.

"US stocks plunged once again, despite the positive lead from Europe, crimping risk appetite and providing stiff headwinds for the kiwi," said Mike Jones, strategist at Bank of New Zealand.

"Tonight's slate of global data releases will provide an important cross-check on the strength of the global upturn - any hint of further softness would knock back risk appetite, and the kiwi, even further."

The kiwi sank to 68.53 US cents from 69.40 cents yesterday, and dropped to 66.29 on the trade-weighted index of major trading partners' currencies from 66.83.

It declined to 60.61 yen from 61.55 yen yesterday, and gained to 81.47 Australian cents from 81.16 cents. It fell to 56.01 euro cents from 56.69 cents yesterday, and slipped to 45.89 pence from 46.22 pence.

Jones said the currency may trade between 68 US cents and 68.60 cents today, with today's ANZ Commodity Price Index likely to provide some support if the price of raw materials holds at record highs. Still, it will take its general direction from offshore sentiment when US home sales and manufacturing data is released on Thursday on the US.

The kiwi dollar sank 3.6 per cent in the past quarter, and Jones said the quarter-end saw investors sell down their holdings in the kiwi as they reposition their weightings away from so-called risky assets.

European investors will probably take a cautious approach to so-called risk currencies when the region's markets open, with banks due to repay some 442 billion euros to the ECB from the regulator's 12-month liquidity facility.