The New Zealand dollar fell nearly one US cent overnight as investors spurned risky currencies on the eve of a European Union summit tasked with getting the diverse countries in Europe to work together on solutions to the region's sovereign debt crisis.
The kiwi dollar fell to 79.66 US cents at 8am from 80.46 cents at 5pm yesterday. Most of the downward move was between 1am and 3am New Zealand time.
Stocks on Wall Street fell on Tuesday, snapping three days of gains, after a meeting of euro-zone finance ministers on Wednesday was cancelled. Also, 3M's earnings disappointed investors and other companies managed expectations for their earnings lower.
Helping sap local sentiment yesterday was softer than expected New Zealand inflation and a downgrade in dairy exporter Fonterra's expected pay-out to farmers.
"We backed off yesterday on the Consumer Price Index data and the Fonterra payout drop," said Alex Sinton, senior dealer at ANZ New Zealand.
The direction was the same today. The kiwi fell further against the Australian dollar to 76.18 Australian cents at 8am from 76.78 cents at 5pm yesterday and 77.56 cents on Friday.
Sinton said there was a lot going on around the EU summit but investors on this side of the world were waiting on Australian Consumer Price Index data for the third quarter due at 1.30pm New Zealand time today.
The market is expecting the headline rate to rise 0.6 per cent to an annual 3.5 per cent. If it is weaker than this the Australian central bank will be under pressure to cut interest rates.
The yen, a so-called safe haven asset for investors, touched a post-World War II high against the dollar ahead of the European Union summit.
After reaching agreement on strengthening banks on Sunday, Europe's leaders are trying to beef up the European Stability Fund.
- REUTERS reports France wanted to turn the fund into a bank but backed down and now an insurance option and a special purpose investment vehicle option are being considered. There are also reports that the International Monetary Fund is mulling becoming part of a solution for Europe.
Demand for the kiwi was damped yesterday by lower than expected inflation data that implied the Reserve Bank of New Zealand may keep interest rates lower for longer.
The central bank has an official cash rate review on Thursday. Governor Alan Bollard is expected to hold the rate at 2.5 per cent but analysts expect he will hike it by 40 points over the coming 12 months.
The Treasury's Pre-election Economic and Fiscal Update yesterday held little for financial markets, with forecasts and the domestic bond programme largely unchanged. The government is expected to return to an operating surplus in the 2014/15 fiscal year, before securing a cash surplus the following year.
Fonterra, the world's biggest dairy exporter, revised down its forecast payout to farmers for the 2011/12 season by 45 cents to $6.30 per kilogram of milk solids. Chairman Henry van der Heyden blamed the strong New Zealand dollar and softer commodity prices.
The kiwi fell to 60.50 yen from 61.17 yen. It fell to 57.22 euro cents from 57.80 euro cents and to 49.75 pence from 50.26 pence.
The trade-weighted index fell to 69.11 from 69.39.