NZ dollar drops 1 USc on Moody's EU disappointment

New Zealand dollar. Photo / NZ Herald

The New Zealand dollar tumbled 1 US cent after Moody's Investors Service said it will review European Union nation's ratings in the wake of the region's inconclusive debt summit.

The kiwi fell to 76.23 US cents at 8am, from 77.19 cents at 5pm. The trade-weighted index declined to 68.04 from 68.48.

Investors eschewed riskier assets for the relatively safety of the greenback and the yen after Moody's said the agreement of EU leaders to closer fiscal cooperation and an enlarged bailout fund doesn't diminish the risk of credit-ranking revisions. "Our intention as announced in November is to revisit the level and dispersion of ratings during the first quarter of 2012," the ratings company said.

"The lukewarm reaction to Friday's EU plan turned cold overnight," said Mike Burrowes, currency strategist at Bank of New Zealand." This saw 'safe haven' demand for the USD and JPY, while the AUD and NZD were among the weakest performers."

S&P said the AAA long term ratings of Europe's biggest economies and the ranking of some of the region's largest banks including, BNP Paribas SA, Commerzbank AG and Deutsche Bank AG could be lowered.

Fitch also expressed disappointment EU leaders continued to make only "incremental improvements" to tackle the debt crisis not a "comprehensive solution."

This helped prompt the Euro to "break through its key support level, which trigged a whole lot of stock selling," said Dan Bell, a currency strategist at HiFX. The kiwi should hold around 76 US cents today, "as long as we don't see losses accelerated" in equity markets.

Reserve Bank of Australia deputy governor Ric Battellino will speak in Sydney tomorrow. The New Zealand dollar has been mostly on a downward path against its Australian counterpart since mid-August and is currently trading at 75.68 cents, down from 80.77 cents in September.

The Dow Jones Industrial Average fell 1.8 per cent, the Standard & Poor's 500 Index dropped 2.1 per cent and the Nasdaq Composite Index declined 1.9 per cent. In Europe, the Stoxx 600 Index shed 1.9 per cent.

The kiwi dropped to 75.68 Australian cents from 75.83 cents yesterday, and was at 59.36 yen from 59.95 yen yesterday. It was at 48.85 British Pence from 49.38 pence yesterday.

The trade-weighted index declined to 68.04 from 68.48.