20 Oct 2010

Dollar weakens on China, US bank action

12:50 pm on 20 October 2010

The New Zealand dollar dropped more than 1½ cents against its US counterpart in the 24 hours to midday Wednesday, as investors flock towards less risky currencies.

Westpac market strategist Imre Spiezer says the dollar had quickly risen to 76 US cents in recent weeks, as markets around the world expected the US Federal Reserve to start printing money.

But Mr Speizer says that sentiment quickly reversed overnight, as the China's central bank raised interest rates 25 basis points, which implied a small slowdown in the economy.

The second spark, he says, was action against Bank of America by large investors and the New York Federal Reserve, who want to force the bank to repurchase $US47 billion in mortgage bonds.

At midday on Wednesday, the dollar was trading at 74.5 US cents.