Kiwi trading worsens

After spending the majority of last week climbing higher, Monday saw the rally of the New Zealand dollar completely rebuffed.

The NZD/USD fell towards 0.7900 as markets were whipped into a frenzy by Spanish debt worries. Bank of New Zealand analysts said that as the European rot gradually spreads, markets are now starting to wonder whether the Spanish sovereign will follow its banks and request a bailout.

Meanwhile, rising government costs are beginning to spill over to Italy from Spain, reigniting contagion fears. In addition, this is all happening at a time when global growth is slowing. There are a number of indicators scheduled for release later this week and investors will get some important pointers from the preliminary figures for Q2 GDP for the US and the UK.

The BNZ analysts went on to say that the NZD/USD, and more generally risk sentiment, remain extremely sensitive to any downside shocks concerning global growth. A couple of factors continue to prop up the NZD, including the NZD/EUR buying, which hit a record high last week above 0.6550, in line with analysts’ forecasts.

In addition, widening interest rate differentials versus steady local interest rates, and declining global yields are helping boost the NZD’s relative yield appeal.