The New Zealand dollar fell amid concerns about the strength of Spain's banking system amid rumours of a run on cash at the recently nationalised Bankia SA, heightening speculation that the region's debt crisis is spreading.
The New Zealand dollar fell to 76.28 US cents at 8am from 76.66 cents yesterday. The trade weighted index declined to 69.24 from 69.44.
The Spanish government denied a report that the nation's fourth-largest lender, Bankia, was suffering from a run on deposits as official data showed the nation has fallen back into recession. Moody's Investors Service is expected to make a statement on downgrades for Spanish banks on Friday, according to Bloomberg. The main drivers of Moody's cuts include rising loan defaults and the renewed risk of a recession.
"Spain is on a death slide effectively and it has been slow and gradual," said Stuart Ive, currency strategist at HiFX. "The last thing the European Union want is for the situation to escalate to the bailout of Spain."
Investors' doubts about the health of the Spanish banking system helped drive up the nation's borrowing costs, with the yield on 10-year Spanish government debt climbing 3 basis points to 6.3 per cent.