The New Zealand dollar fell as stock markets declined and optimism waned ahead of this weekend's European Union summit, which investors hope will sort out the region's burgeoning debt woes and fragile banking system.
The kiwi dollar was recently trading at 78.99 US cents from 79.61 US cents at marketclose yesterday.
Equity markets fell as contradictory reports emerged about agreement between France and Germany over how to manage the European Financial Stability Fund, sapping investors' confidence the region will address its sovereign debt problems. The Standard & Poor's 500 index was down 1.4 per cent in late trading, with Apple reporting a 5 per cent drop in quarterly earnings, the first time the stock has missed estimates in six years.
The region's troika of power-brokers, German Chancellor Angela Merkel, French President Nicolas Sarkozy and European Central Bank president Jean-Claude Trichet, met in Frankfurt to prepare for this weekend's Summit, but divisions emerged over the role of the European Central Bank, with banks lobbying against forced recapitalisation and greater write-downs of Greek debt, according to reports.
Equity prices shifted to negative, and this sapped investors' appetite for risk-sensitive assets, such as the kiwi, said, Alex Sinton, a senior dealer at ANZ New Zealand. "At this stage, trading is headline driven, and although the NZ dollar has fallen slightly against the Euro, USD, Yen and Pound, there have only been minor moves since market opening this morning."
Last night Chris Tennent-Brown, FX economist at Commonwealth Bank of Australia in Sydney said he had "never seen a time when there are so many competing forces at play" with the kiwi dollar.
Tennent-Brown doesn't expect the weekend summit to offer a silver bullet, and says that leaves potential for markets to be disappointed.
The New Zealand dollar was little changed at 77.35 Australian cents from 77.40 cents yesterday, and fell to 60.64 yen from 61.04 yen yesterday. It slipped to 57.48 euro cents from 57.67 cents, and declined to 50.12 British pence from 50.63 pence.
The trade-weighted index was at 69.29 from 69.63 yesterday.
