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NZ dollar falls on threat of hung Italian parliament

NZ dollar falls as threat of hung Italian parliament erodes investor confidence

By Paul McBeth

Feb. 26 (BusinessDesk) - The New Zealand dollar fell as the threat of a hung Italian parliament eroded investor confidence, and reignited fears Europe may be in for another sovereign debt scare.

The kiwi fell to 83.40 US cents at 5pm in Wellington from 83.62 cents at 8am, and 83.63 cents yesterday. It rose to 63.82 euro cents from 63.41 cents yesterday.

Uncertainty over the outcome of the first Italian election since the 2008 global financial crisis spooked investors, and prompted stocks across Asia to fall. Japan's Nikkei 225 index fell 2.1 percent in afternoon trading, while Hong Kong's Hang Seng index was down 0.6 percent, and Australia's S&P/ASX 200 index 0.8 percent.

Early polling indicates the centre-left coalition committed to sitting Prime Minister Mario Monti's austerity programme has a small lead in the lower house, but would likely be hamstrung by a divided upper house.

"A picture of a new election being ordered, or an unstable coalition would both be bad for the kiwi," said Imre Speizer, market strategist at Westpac Banking. "I wouldn't call it lower until we see a clear breakdown" of the 83 US cents level, he said.

New Zealand financial institutions pared back their expectations for inflation in the latest survey by the Reserve Bank, and see one-year ahead consumer price rises of 1.68 percent and two-year ahead projections at 2.17 percent.

Reserve Bank of Australia assistant governor Guy Debelle talked down the Australian dollar in a speech, saying rates may be cut further if the currency's strength holds back economic growth. The kiwi slipped to 81.15 Australian cents at 5pm in Wellington from 81.34 cents yesterday.

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Investors will be looking at Federal Reserve chair Ben Bernanke's semi-annual testimony to lawmakers over the next two days in Washington, after the Federal Open Market Committee was divided on the future of quantitative easing.

Speizer said that could revive flagging investor confidence if Bernanke is more optimistic.

The kiwi dollar fell to 76.81 yen from 78.65 yen yesterday as analysts prepare for Japan's government to appoint the next governor of the Bank of Japan.

The local currency fell to 54.59 British pence at 5pm in Wellington from 55.26 pence yesterday. The trade-weighted index fell to 76.28 from 76.57.

(BusinessDesk)

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