NZ dollar falls as European debt fears shift to Italy

NZ dollar falls as European debt fears shift to Italy

By Jason Krupp

July 12 (BusinessDesk) - The New Zealand dollar fell against the greenback as investors fled their growth positions in favour of safe haven assets amid speculation Italy could be the next European country to sink into a debt crisis.

Fears that Italy would join Greece on Europe's debt sick list saw the selloff of Italian assets spread to global markets, sapping demand for growth-linked currencies such as the New Zealand and Australian dollar. In the offshore session, the FTSE Italia All-Share Index plunged 3.8% to 19,042.54, the Standard & Poor's 500 Index fell 1.8% to 1,319.49, and the 19-commodity Thompson Reuters CRB Index fell 0.9% to 340.62.

The sharp risk-off shift in sentiment saw heavy safe-haven asset buying, with the U.S. currency last trading at 76.04 in the Dollar Index, a measure of the greenback against six major currencies, its highest level since May 23. U.S. Treasury debt also saw strong demand, with the yield on the 10 year note falling below 3%.

"The kiwi held up reasonably well overnight but it has come off the highs," said Tim Kelleher, head of institutional FX sales New Zealand at ASB Institutional. "In the overall scheme of things there is still demand, so we seem to the Acapulco of the South Pacific at the moment."

The kiwi recently traded at 82.90 U.S. cents, up from 83.38 cents yesterday, and fell to 72.06 on the trade-weighted index of major trading partners’ currencies from 72.24. It fell to 77.89 Australian cents from 77.93 cents yesterday, and dropped to 66.48 yen from 67.33 yen. It rose to 59.14 euro cents from 58.84 cents yesterday, and slipped to 52.09 pence from 52.18 pence previously.

Domestic data will increasingly come into the spotlight this week, with the government statistician set to release the much-delayed first quarter economic growth data on Thursday. The market is betting that the New Zealand economy grew 0.4% in the first three months of the year, even as an earthquake laid waste to much of Christchurch in February.

The kiwi may trade in a range of 82.75 U.S. cents and 83.25 cents, Kelleher said, with the bias towards a gradual slide over the session.

(BusinessDesk)

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