NZ dollar falls to 6-week low ahead of RBNZ review

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The New Zealand dollar fell to a six-week low as the Reserve Bank's monetary policy statement looms, amid growing concerns a second Greek bailout won't stop the country defaulting.

The New Zealand dollar fell as low as 81.01 US cents from 81.44 cents at 5pm yesterday. It traded at 81.19 cents at 8am. The trade-weighted index fell to 72.18 from 72.23.

Investor sentiment turned this week after a downgrade in Chinese growth expectations came and heightened fears Greece's biggest bailout won't save the Mediterranean nation, with stock markets in the US and in Europe fell. That comes as several central banks will review monetary policy, including New Zealand's Reserve Bank

Governor Alan Bollard is expected to hold the official cash rate at 2.5 percent when he reviews monetary policy tomorrow. Still, traders have renewed expectations of future hikes, and have priced in 24 basis points of increases in the coming 12 months, according to the Overnight Index Swap Curve.

"In New Zealand's respect we will be very much on the fence watching the situation unfold but people will be looking for a push out of when rises are expected to happen,'' said Stuart Ive, currency strategist at HiFX. "All central banks act retrospectively - every central bank will level rates unchanged and assess the economy going forward.''

The kiwi dollar extended its losses after the Reserve Bank of Australia warned any material deterioration in the Australian economy will give it scope to cut rates further. Governor Glenn Stevens kept the target cash rate at 4.25 percent. The Bank of Canada, Bank of England and European Central Bank also meet on Thursday to review interest rates.

Dimming investor sentiment is the rising nervousness about whether the Greek debt-swap deal on Thursday will be a success with only 20 percent of private creditors so far agreeing to the deal. The Greek government has set a 75 percent participation rate as a threshold for proceeding with the transaction.

"There is an immense about of risk surrounding this scenario,'' Ive said. "If it doesn't go according to plan there will be huge risk aversion taking place - the New Zealand and Australian dollars will be slammed.''

"This risk is why we are seeing selling coming into the market,'' he said.

A Greek default would cause more than a trillion euros of damage to the euro zone economy and could leave Italy and Spain dependent on outside help to stop a crisis from spreading.

The region's economy contracted 0.3 percent in the fourth-quarter, according to the European Union's statistics office. In line with an initial estimate published on February 15.

Those rising fears have seeped into the price of raw materials, with the average price for dairy products falling 0.9 percent on Fonterra Cooperative Group's GlobalDairyTrade platform, its third straight decline. The prices of commodities fell 1.4 percent in the Northern Hemisphere session, according to the Thomson Reuters/Jefferies CRB Commodity Index.

In New Zealand, wholesale trade survey for the December quarter for January are released this morning, while Australia's fourth-quarter gross domestic product figure will come out this afternoon.

The New Zealand dollar rose to 76.99 Australian cents from 76.65 cents yesterday at 5pm. It gained to 61.88 euro cents from 61.70 cents.

The kiwi fell to 65.54 yen from 66.32 yen yesterday, and rose to 51.60 pence from 51.38 pence.