Kiwi falls almost 1 US cent as EU summit outcome awaited

BUSINESSDESK: The New Zealand dollar fell almost one cent against the greenback as markets await details from the European Union summit in Brussels, which is expected to provide fresh clues of how leaders plan to address the region's growing debt crisis.

The New Zealand dollar fell to 78.72 US cents just before 8am from 79.49 cents yesterday at 5pm. The trade weighted index decreased to 71.61 from 72.05.

The two-day summit is focused on helping Spain and Italy, whose borrowing costs continue to soar, with leaders under pressure to stop the crisis spreading.

Policymakers are discussing a plan for economic integration within the region. The blueprint suggests common banking supervision and deposit insurance and a “criteria-based and phased” move toward joint debt issuance.

It also imposes upper limits on budgets and debt levels of nations that use the euro.

"The kiwi crashed back down to earth last night as investors remained focused on the summit – it undermined risk sentiment over the last 24 hours," said Mike Jones, market strategist at Bank of New Zealand.

German Chancellor Angela Merkel has rejected calls to investigate joint debt or do more to cut Spanish and Italian borrowing costs. Instead, she remains focused on creating measures to boost economic growth.

Ms Merkel's mood was not helped by data showing Germany's jobless rate climbed more than expected in June, rising for the fourth month in a row. It is another indicator that Europe's largest economic engine is starting to slow.

The kiwi fell to 63.24 euro cents from 63.52 cents overnight.

In the US, the world's largest economy, gross domestic product rose at a 1.9% annual rate in the first quarter, the Commerce Department said.

The pace of expansion, unchanged from a prior reading, was well below the 3% increase in the fourth quarter. Motor vehicle output accounted for more than half of this quarter's advance.

The Reserve Bank's monetary and credit aggregates and building consents for May from Statistics New Zealand are set for release today.

The kiwi fell to 78.41 Australian cents at 8am from 78.57 cents at 5pm yesterday. It dropped to 50.79 British pence from 50.99 pence but increased to 62.56 yen from 63.15 yen.