By Jason Krupp
The New Zealand dollar fell against the greenback, with European equities tumbling amid fears that German political support for the bailout of indebted euro zone states is eroding.
The New Zealand dollar recently traded at 83.14 US cents, down from 84.03 cents on Monday, and fell to 71.79 on the trade-weighted index of major trading partners' currencies from 72.48 previously.
European equities were routed after German Chancellor Angela Merkel's party suffered its fifth election loss this year, sparking fresh fears that Social Democrats are losing sway with voters critical of her Government's handling of the European bailouts.
Europe's Stoxx 600 Index, a benchmark covering large to small cap stocks across 18 countries in the European region, fell 4.1 percent to 223.45, its biggest two-day drop since March 2009 according to Bloomberg.
The euro fell to $US1.4089, from $US141.43 on Monday (NZ time), as investors fled for the perceived safety of the US dollar and other hedge assets.
The mood on global equity markets looks deeply negative, with US stocks poised for a sharp fall when they open on Tuesday after the Labour Day holiday.
"It's hard to imagine how sharply lower the US markets will drop later tonight," said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional.
"If nothing improves in Europe overnight the Kiwi might head to the bottom of the ranges with support around 80 to 82 US cents."
On the crosses, the Kiwi recently traded at 78.80 Australian cents, down from 79.36 cents on Monday, and fell to 63.89 Japanese yen from 64.59 yen previously. It dropped to 58.98 euro cents from 59.46 cents Monday.
Locally, the Kiwi/Australian dollar cross rate will be in the spotlight, with the Reserve Bank of Australia expected to keep interest rates on hold at 4.75 per cent when it meets later on Monday.
NZN