Kiwi falls as investors weary of Spain bailout talk, Aussie declines

BUSINESSDESK: The New Zealand dollar fell in local trading as investors tire of Spain's dalliance with seeking a bailout and as Australia's economy threatens to slow down.

The kiwi fell to 81.43 US cents at 5pm in Wellington from 81.75 cents at 8am, down from 81.60 cents on Friday in New York. The trade-weighted index was little changed at 72.80 from 72.83 last week.

Global markets have been waiting for Spain to formally request a bailout as it faces mounting fiscal deficits. It will be a major topic at a European Union summit at the end of this week.

That uncertainty has left investors cold on risk-sensitive assets such as the kiwi dollar and prompted them to seek so-called safe havens such as government bonds.

The prospect of a slowing Australian economy has also weighed on the trans-Tasman currencies ahead the release of the minutes to the Reserve Bank of Australia's last monetary policy meeting tomorrow.

The yield on the benchmark Australian 10-year government bonds fell 1.5 basis points to 3.03%. The kiwi was little changed at 79.70 Australian cents from 79.77 cents on Friday in New York.

"The Aussie economy is probably going to slow down quite a bit over the next year," says Imre Speizer, market strategist at Westpac Banking Corp in Auckland. "Aussie rates are lower, dragging the Aussie dollar down with them and the kiwi is likely to follow them."

The pace of growth in New Zealand's consumer prices slowed to an annual pace of 1.1% in the September quarter, according to a Reuters survey. The official figures will be published tomorrow, though Mr Speizer does not think it will be market-moving, with inflation relatively benign.

He says he expects the currency to fall over the week, with a sustained break below 81.50 US cents likely to see the kiwi fall to 80.70 cents. Four of five analysts surveyed by BusinessDesk expect the kiwi will fall this week.

The kiwi slipped to 63.91 yen from 64.02 yen last week, and was little changed at 63.09 euro cents from 63.04 cents. It traded at 50.75 British pence at 5pm in Wellington from 50.78 pence.