The New Zealand dollar fell more than half a US cent as optimism over Spain's 100 billion euro lifeline faded after questions were raised about who is going to pay for the bailout, sapping investor confidence and pushing stocks on Wall Street lower.
The kiwi fell to 76.87 US cents at 8am from 77.65 cents yesterday at 5pm. The trade weighted index declined to 70.15 from 70.48.
Stocks on Wall Street fell as investors reassessed the plan to bailout Spain's banking system, with the Standard & Poor's 500 index dropping 1.3 per cent to 1308.93. European policymakers are yet to clarify whether the loan granted to shore up Spain's banks will come from the region's permanent support fund, the European Stability Mechanism or its temporary European Financial Stability Fund.
"Overnight we have seen various calls from Germany and Finland that the money should come from the European Stability Mechanism," said Stuart Ive, currency strategists at HiFX. "The New Zealand dollar is taking its lead from overseas and it means we are seeing a risk-off scenario - at the moment the kiwi has the potential to go as low as 76.20 US cents and there will be more risk towards the end of the week with the Greek elections."
Spain's rescue comes a week before Greece's second round of elections on June 17. The result will be closely watched by markets in the event voters elect a government that decides to leave the region's shared currency.
