Kiwi dollar falls amid renewed fears over Europe

Photo / Dean Purcell

The New Zealand dollar fell as investors' appetite for riskier, or higher yielding, assets after Greece decided to put the latest euro zone bailout package to a referendum, eroding support for the euro and pushing stocks on Wall Street lower.

The kiwi was at 79.64 US cents at 8am from 80.77 cents at 5pm yesterday.

Investors were expected to worry about Europe's prospects as the week progressed when the euphoria of last weekend's deal eased, and they've latched on to an unexpected referendum promise by Greek Prime Minister George Papandreou late on Monday. An opinion poll published October 29 showed most Greeks believe the accord is negative.

The referendum has clouded the debate ahead of a Group of 20 leaders' summit in France on November 3-4.

"The Greece referendum has been the number one priority in the markets. We don't know what the result will be," said Richard Franulovich, a senior currency strategist at Westpac Banking in New York.

Still, there is a lot going on with a Federal Open Market Committee meeting result due tomorrow followed by a European Central Bank decision.

Westpac's Franulovich said some committee members have been pushing for another round of quantitative easing but they are not going to get it.

The kiwi trimmed gains against the Australian dollar after the Reserve Bank of Australia cut its target cash rate a quarter-point to 4.5 per cent yesterday, making the yield on New Zealand dollar investments more attractive in comparison.

The kiwi eased to 76.84 Australian cents at 8am from 76.98 cents at 5pm yesterday.

RBA Governor Glenn Stevens said inflation concerns had given the board a bias to tighten monetary policy, but now it will take a more neutral stance in future reviews as those fears abate. Financial markets have regained some stability, but it will be some time before Europe's sovereign debt concerns will be laid to rest, Stevens said in his statement.

That comes a week after New Zealand's central bank Governor Alan Bollard kept the official cash rate at a record-low 2.5 per cent as the heightened volatility in global financial markets holds back the local recovery.

Damping support for the kiwi was a fall in Fonterra's prices for dairy products on its online auction site. The trade-weighted price of dairy products fell 1.2 per cent on the GlobalDairyTrade website.

ANZ said yesterday that New Zealand commodity prices extended their decline for a fifth month in October in their biggest drop since February 2009, according to the ANZ Commodity Price Index. Falling prices for dairy products and kiwifruit weighed on the barometer of locally produced raw materials.

Still, tepid wage inflation will help stay Bollard's hand from hiking New Zealand's interest rates in the immediate future, with the labour cost index rising 0.6 per cent in the third quarter yesterday, ahead of Thursday's household labour force survey. That's expected to show the jobless rate fell to 6.4 per cent in the quarter from 6.5 per cent in the three months ended June 30, according to a Reuters survey of economists.

Traders are also keeping an eye out for Bank of Japan intervention to knock the yen lower. The yen took a knock against the greenback on Monday after the Bank of Japan intervened. The New Zealand dollar spiked against the yen when there was intervention, but it eased to 62.33 yen at 8am from 63.14 yen yesterday.

It rose to 58.00 euro cents from 57.73 cents yesterday, and slipped to 49.81 British pence from 50.70 pence.

The trade-weighted index was little changed at 69.79 from 70.38.