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NZ dollar falls to 5-month low in face of Greek impasse

Tuesday 15th May 2012

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The New Zealand dollar fell to a five-month low as Greek politicians struggled to form a new government, heightening speculation the nation may leave the euro region and sapping investors’ risk appetite.

The New Zealand dollar fell as low as 77.55 US cents overnight, the lowest the currency has fallen since Dec. 26. It traded at 77.78 cents at 8am, down from 78.16 cents yesterday at 5pm. The trade weighted index decreased to 70.19 from 70.40.

Greece's political stalemate has entered its second week, fueling fears the nation will renege on pledges to cut spending under the two bailouts negotiated since May 2010. Any new government needs to stick to the terms to receive the funds required to avoid bankruptcy or risk leaving the euro. So far Greece's three main political parties have been unable to reach a coalition agreement.

"Instead of rescue efforts, talk amongst European leaders is increasingly shifting towards managing a Greek exit," said Mike Jones, currency strategists at Bank of New Zealand. "Until we see some resolution to the Greek crisis, it will be a path of least resistance for the kiwi."

Euro zone finance ministers are currently meeting in Brussels, where they are believed to be discussing the situation in Greece and Spain, where the government made its fourth attempt to clean up the banks, last week. European Union finance ministers are also set to meet on Tuesday.

"We should start to see headlines across the wires from that but I don't think we will see any concrete resolutions," Jones said.

Traders will be eyeing the first meeting between new French President Fraincois Hollande and German chancellor Angela Merkel on Wednesday. Hollande, Nicolas Sarkozy's successor, has already distanced himself from the region’s austerity push.

A data heavy week kicked off in Europe with industrial production figures unexpectedly declining in March. Production in the 17-nation euro area slipped 0.3 percent in March, when compared with a month earlier. Economist had forecast a 0.4 percent increase, according to a Bloomberg survey.

Euro-zone gross domestic product is set for release on Tuesday, while inflation, trade balance and unemployment figures are due out on Wednesday.

In the world's largest economy, the US, consumer prices and retail sales are due out today.

In New Zealand's largest export market, Australia, the Reserve Bank will release minutes from its May meeting today. The RBA slashed half a percentage point from its benchmark interest rate to 3.75 percent, citing a persistently high currency and slowing output growth.

There is no significant data scheduled for release in New Zealand today.

The New Zealand dollar was unchanged on 60.59 euro cents from 5pm yesterday. The kiwi fell to 77.79 Australian cents from 78.04 cents and slipped to 48.31 pence from 48.65 British pence. It dropped to 62.08 yen from 62.53 yen.

BusinessDesk.co.nz

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