By BNZ Currency Strategist Danica Hampton The NZD/USD slipped lower last night, amid dramatic declines across global equities and risk aversion. Heavy losses in financial stocks sent global equities sharply lower last night. US banks are still struggling to find capital (Citigroup agreed to buy the deeply troubled Wachovia bank with FDIC support and Japan's Mitsubishi UFJ agreed to buy a stake in Morgan Stanley), but it's become evident that US banks are not the only ones in strife. UK lender Bradford and Bingley and Belgian-Dutch financial group Fortis have both been nationalised. The US House of Representatives' rejection of the proposed US banking bailout plan simply exacerbated the equity market losses. The FTSE fell slipped 5.3%, the German DAX fell 4.2% and the S&P500 is currently down 8.0%. The heavy losses in global equity markets triggered a bout of risk aversion and our risk appetite index (that has a scale of 0-100%) plunged to 28%. As investors bailed out of risky assets, growth sensitive currencies like NZD were sold heavily particularly against "˜safe-haven' currencies like JPY. NZD/JPY fell from above 73.00 to within a whisker of 70.00, and NZD/USD was dragged down from nearly 0.6900 to below 0.6750. While global themes of USD sentiment and risk appetite will likely be the predominant driver of the NZD in the near-term, the local backdrop is unlikely to be currency supportive. Today's NBNZ business confidence will likely bounce (in line with recent surges in consumer confidence), but indicators of activity, employment and investment intentions are likely to paint a more sobering picture. Against a backdrop of weak equity markets, fragile risk appetite and slowing global growth, we suspect bounces in the NZD/USD will continue to be limited. For today, we suspect bounces will be limited to the 0.6800-0.6820 region. Solid support is expected around 0.6690-0.6700, but a break below this level will open up further downside towards 0.6600. The USD edged up against the major currencies last night, after the US House of Representative's rejected the proposed banking bailout plan and amid heavy losses in global equity markets. The US House of Representatives rejected (by a vote of 228-205) the "Emergency Economic Stabilisation Act of 2008 (EESA)". The bill would have authorised the US Treasury to spend up to US$700b to purchase troubled assets from the beleaguered banking sector. The bill was rejected by sceptics from both parties who questioned the need for it and whether it would actually solve any of the problems. Should the measure somehow clear the House of Representatives, the Senate would be expected to vote on Wednesday. Even before news of the rejected votes hit the newswires, heavy losses in financial stocks had led global equities lower last night. The FTSE slipped 5.3%, the German DAX fell 4.2% and the S&P500 is currently down 8.0%. Wachovia shares fell nearly 40% after Citigroup finally agreed to a merger, with the caveat of FDIC support. Japan's Mitsubishi UFJ financial group has committed to buying a stake in Morgan Stanley. The UK government has nationalised UK mortgage lender Bradford and Bingley and Belgian-Dutch financial group Fortis has been nationalised by the Benelux governments. The German authorities guaranteed a EUR35b loan to Hypo Real Estate Holdings after the commercial lender suffered from a run on its Dublin-based Depfa Bank. While the Icelandic authorities have bought a 75% stake in the countries third largest bank. Responding to tensions in the cash markets, the Fed dramatically increased the liquidity available (more than doubling the swap lines held with various central banks) to help out with year-end liquidity. The heavy losses in global equity markets prompted a "flight to quality" and safe-haven demand saw 2-year US government bond yields plunge 44bps to 1.65%. While the reduced yield support weighed a bit on the USD, the USD still finished the night up against most of the major currencies. It's become evident the strife in financial markets is a global problem (and not solely limited to the US). This has tended to support "˜safe-haven' currencies like the JPY and USD. Steady selling of EUR/JPY saw EUR/USD slip from above 1.4550 to nearly 1.4300, but USD weakness after the rejected House vote saw EUR/USD climb back towards 1.4500. * Danica Hampton is BNZ's Currency Strategist. All of the research produced by the BNZ Markets team of economists is available here.