Kiwi falls as European jitters re-emerge, sapping risk appetite

BUSINESSDESK: The New Zealand dollar fell in local trading as re-emerging fears about the health of Europe's heavily indebted economies sapped investor appetite for higher-yielding, riskier assets and pushed stocks down across Asia.

The kiwi fell to 82.29 US cents at 5pm in Wellington from 82.88 cents at 8am and 82.78 cents on Friday in New York. The trade-weighted index declined to 73.16 from 73.48 last week.

Stocks across Asia fell amid renewed fears over Europe's sovereign debt crisis, with mounting speculation Spain will formally seek a bailout this week to recapitalise its ailing banking sector.

Japan's Nikkei 225 index fell 0.6% in afternoon trading, Australia's S&P/ASX 200 index declined 0.5% and Hong Kong's Hang Seng Index was down 0.1%.

New Zealand's two-year swap rate, a fixed payment made to get floating rates, fell 5.5 basis points to a two-week low 6.67%.

"From an economic perspective, it just looks like a matter of time [before Spain asks for a bailout]. But from a political perspective it's another matter," says Chris Tennent-Brown, FX economist at Commonwealth Bank of Australia in Sydney. "Over the week we should see a bit more firming up of the US dollar" which will bring kiwi down.

Investors will be look at German business confidence indicators in Northern Hemisphere trading after last week's tepid manufacturing data eroded optimism about the region's economic outlook.

The kiwi will probably fall against the greenback this week, according to four of five analysts surveyed by BusinessDesk. It was almost unchanged on the week at the close of trading on Friday in New York.

The strength of the New Zealand dollar has sparked local debate over the appropriate monetary policy targets of the Reserve Bank as central banks worldwide embark on money printing exercises to increase the money supply and devalue their currencies.

That has seen the outgoing Reserve Bank governor Alan Bollard and Treasury Secretary Gabriel Makhlouf come out and defend the current settings.

New governor Graeme Wheeler's new policy target agreement with Finance Minister Bill English includes a long-run average inflation target of 2%, in addition to the medium-term target band of between 1% and 3%. 

The kiwi fell to 63.54 euro cents from 63.78 cents last week and declined to 50.72 British pence from 50.99 pence. It decreased to 78.92 Australian cents from 79.11 cents and dropped to 64.20 yen from 64.79 yen last week.