Currency traders brace themselves for falling NZ dollar

Imre Speizer, market strategist at Westpac, said traders could expect a volatile week ahead. Photo / File

Currency traders will be on tenterhooks this week as the Greek sovereign debt crisis goes from bad to worse, with more downward pressure likely to come on the Kiwi dollar as foreign investors seek safe havens.

The kiwi hit a new five-year low yesterday morning after a weekend of more bad headlines from Greece, which has been in financial turmoil for the past five years.

After bailout talks between the Greek Government and foreign lenders broke down, the European Central Bank froze funding for Greek banks, forcing Athens to shut down the system.

The developments have thrown into question Greece's financial future and continued membership of the 19-nation common currency, the euro.

Any worsening of the situation would see international currency flows suddenly favour the so-called safe-haven currencies of the US dollar, the Swiss franc and the Japanese yen, with the higher-risk currencies, such as the kiwi, suffering as a result, currency traders said.

The kiwi has been under downward pressure for the past few months in reaction to sharply lower dairy prices, the Reserve Bank's surprise cut in the official cash rate on June 11, and the expectation that still lower rates are on the horizon.

"In uncertain times, risk tends to be taken off the table and the Kiwi dollar has been positioned for the downside," said ANZ senior foreign exchange strategist Sam Tuck.

"People are definitely on the edge of their seats - volatility is high and the kiwi will continue to trade on those European headlines."

Imre Speizer, market strategist at Westpac, said traders could expect a volatile week ahead of the referendum on the proposals put forward by Greece's creditors.

The New Zealand dollar sank to US67.87c yesterday before recovering to US68.45c.