NZ dollar may fall as Cyprus deal raises spectre of bank run across Europe

The New Zealand dollar may fall if a bank run in heavily indebted nations emerges after a lifeline thrown to Cyprus saw a major bank shut down and will leave uninsured depositors facing losses.

The kiwi traded at 84.44 US cents at 5pm in Wellington from 83.59 cents at 8am and 83.47 cents yesterday. The trade-weighted index gained to 76.60 from 76.43 yesterday.

Investors are on tenterhooks as they watch the fall-out from yesterday’s deal to save the Cypriot economy with a 10 billion euro lifeline from the International Monetary Fund, the European Union and the European Central Bank.

Traders are concerned at whether the rescue package signals more risk of debt woes sweeping through the region and that it might cause a run on deposits as people look to protect their cash. The euro sank to US$1.2866 at 5pm in Wellington from US$1.3028 yesterday.

“This week is pretty much risk on, risk off all around Europe,” said Imre Speizer, market strategist at Westpac Banking in Auckland. “If we see any hint of a run on Portugal or Spain or even Greece, that would certainly take the kiwi lower for sure.”

The kiwi may fall towards 83 US cents over the next few days, he said.

Fonterra Cooperative Group unveils its first-half earnings tomorrow, and investors will be looking to see if the world’s biggest dairy exporter will lift its forecast payout to farmers. Drought conditions across New Zealand’s North Island have seen milk supply dwindle and push up global prices for dairy products.

New Zealand posted a bigger than expected trade surplus of $414 million in February on growing exports to China, according to government figures published today.

The local currency climbed to 64.81 euro cents from 64.05 cents yesterday, and gained to 54.93 British pence from 54.75 pence. It fell to 78.67 yen from 79.13 yen and slipped to 79.81 Australian cents from 79.88 yesterday.

(BusinessDesk)