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NZ dollar falls amid concerns over Spanish banks

Friday 18th May 2012

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The New Zealand dollar fell amid concerns about the strength of Spain's banking system amid rumours of a run on cash at the recently nationalised Bankia SA, heightening speculation that the region's debt crisis is spreading.

The New Zealand dollar fell to 76.28 US cents at 8am from 76.66 cents yesterday. The trade weighted index declined to 69.24 from 69.44.

The Spanish government denied a report that the nation's foruth-largest lender, Bankia, was suffering from a run on deposits as official data showed the nation has fallen back into recession. Moody’s Investors Service is expected to make a statement on downgrades for Spanish banks on Friday, according to Bloomberg. The main drivers of Moody's cuts include rising loan defaults and the renewed risk of a recession.

"Spain is on a death slide effectively and it has been slow and gradual," said Stuart Ive, currency strategist at HiFX. "The last thing the European Union want is for the situation to escalate to the bailout of Spain."

Investors' doubts about the health of the Spanish banking system helped drive up the nation's borrowing costs, with the yield on 10-year Spanish government debt climbing 3 basis points to 6.3 percent.

"It has been pretty choppy on the kiwi, up to the lofty levels of 76.80 cents and then it's up and down and up and down," Ive said. "We are headline trading again."

In France, the average borrowing cost fell in the first auction since President Francois Hollande took power. The average yield on the September 2014 notes was 0.74 percent, compared with 0.85 percent at the last auction on April 19. On the February 2017 debt, the yield was 1.72 percent, down from 1.83 percent in the previous sale, according to Bloomberg.

The New Zealand dollar was little changed at 60.11 euro cents from 60.17 cents yesterday as uncertainty about Greece fiscal and political situation continued. Fitch Ratings downgraded the indebted nation's credit rating one level to CCC from B-, citing “heightened risk” that the nation will not be able to sustain EU membership.

"So what? Junk is junk," Ive said. "It makes no difference whatsoever."

Greece's three main political parties have been unable to reach an agreement since elections on May 6. The nation will probably return to the ballot box on June 17. This date is yet to be confirmed.

Leaders of the Group of Eight nations will meet near Washington DC this weekend and are expected to discuss how to deal Greece, as well as economic growth in the US, China and Japan. 

There is no significant New Zealand data set for release today.

The New Zealand dollar was little changed at 77.09 Australian cents from 77.03 cents yesterday. It rose to 48.33 British pence from 48.17 pence, and was little changed at 60.47 yen from 61.54 yen.

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