Kiwi falls against euro on Spanish bailout speculation

BUSINESSDESK: The New Zealand dollar fell against the euro on speculation Spain will seek a bailout after its credit rating was downgraded and increased demand at an Italian bond sale spurred bets the region's debt crisis is easing.

The kiwi dropped to 63.23 euro cents at 8am from 63.55 cents at 5pm yesterday and was little changed at 81.78 US cents from 81.80 cents. The trade weighted index was largely unchanged at 72.98 from 73.01.

Rating agency Standard & Poor's cut Spain's credit rating to one level above junk, fuelling speculation the indebted nation will be forced to ask for a bailout sooner than expected to allay concerns Europe's debt crisis is spreading.

The Italian government drew solid demand for its auction of three-year debt, selling 3.75 billion euros. Equity markets in Europe rallied after the news, with France's CAC 40 up 1.4% and Germany's DAX 30 rising 1.06%. 

"Ultimately, Spain should request a bailout and just get it done but there is a whole political game going on," says Stuart Ive, currency strategist at HiFX. "Everyone is saying take the money and they are refusing to do so but they do have time on their side."

"Today we will see the cross consolidate and see if it gets up to 63.35 euro cents as the overnight session kicks in. Over the next week, though, it will probably drift lower."

The kiwi was little changed at 79.60 Australian cents from 79.53 cents yesterday at 5pm after data showed more people found work across the Tasman than expected in September.

The number of people employed rose by 14,500, the biggest increase since May. The jobless rate increased by 5.4%, the highest since April 2010.

"The kiwi battled against the Aussie yesterday because of the employment data," Mr Ive says. "At the moment until we get the next piece of local data of some significant the current levels will hold."

There is no significant New Zealand data set for release until Tuesday, when the consumer price index by Statistics NZ and Australia's full monetary policy statement are set for release.

The kiwi was little changed at 50.94 British pence from 51.05 pence yesterday and rose to 64.04 yen from 63.83 yen.