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.

"The market got spooked and euro backed off and that's starting to weigh on Australian and kiwi," Goh said.

The kiwi recently traded at 86.85 US cents, down from 87.44 cents yesterday, and fell to 74.15 on the trade-weighted index of major trading partners' currencies from 74.42. It rose to 79.07 Australian cents from 79.01 cents yesterday, and fell to 67.57 yen from 67.87 yen. It fell to 60.71 euro cents from 60.80 cents yesterday, and dropped to 53.16 pence from 53.49 pence previously.

One bright spot on the economic front was the improvement in US data, with the number of people claiming jobless benefits falling to a three-month low last week, and contracts to buy existing homes rising in June. Initial claims for state unemployment benefits dropped by 24,000 to 398,000, beating expectations of 415,000, and existing homes rose 2.4 per cent in June, a second month of gains.

The kiwi may trade between a range of 86.70 US cents and 87.49 cents, Goh said, the currency like to remain range bound today.