NZ dollar drops to 4-month low as Europe rattles markets

The New Zealand dollar fell to a four-month low and may extend its decline amid concern the commitment of new euro zone governments such as in Greece and France to austerity measures may waiver, undermining the region's economy.

The kiwi fell to 78.75 US cents from 79.29 cents at 5pm New Zealand time yesterday. Earlier it touched 78.61 cents, the lowest since Jan. 9. The trade-weighted index fell to 70.59 from 70.94. Bank of New Zealand strategist Mike Jones said the currency could fall to 75 cents in the next few weeks.

Equity markets and commodities fell amid concern Greece's new government will back away from austerity measures tied to bailout funds.

Since the weekend's elections, the leading New Democracy part has failed to form a coalition and the second-ranked Syriza party is now trying to form a left-wing alliance. France's CAC 40 Index fell 2.9 per cent and Germany's DAX 30 dropped 1.9 per cent. The Thomson Reuters/Jefferies CRB Commodity Index dropped about 0.8 per cent.

"There's no doubt kiwi sentiment has switched to the downside," said Mike Jones, strategist at Bank of New Zealand. "The dark clouds are gathering once again in Europe and US growth is stuttering."

European governments "are between a rock and a hard place" as austerity measures have been "very damaging but relatively ineffective."

The kiwi dollar was little changed at 77.84 Australian cents after the Australian federal budget cut spending to return the nation to surplus next year.

The New Zealand dollar fell to 6054 euro cents from 60.85 cents and declined to 62.90 yen from 63.42 yen. The kiwi fell to 48.76 British pence from 49.02 pence.