NZ dollar follows sharemarkets lower

The New Zealand dollar fell against the US dollar after global equity markets surrendered last week's gains amid heightened recession fears.

The New Zealand dollar fell to 81.65 US cents from 82.18 on Friday in New York, and declined to 70.29 on the trade-weighted index of major trading partners' currencies from 70.79.

Stocks on Wall Street and in Europe closed the week in the red as fears the US and European Union are increasingly likely to face another recession saw investors abandon their so-called risk positions in favour of safe-haven assets, such as government bonds. On Wall Street, the Standard & Poor's 500 Index fell 1.5 per cent to 1,123.53, and Europe's Stoxx Index dropped 1.6 per cent to 223.13.

The flight to safety lifted demand for gold and treasuries, with the hedge metal last trading at US$1,851.65 an ounce, down from a fresh historic high of US$1,877. The yield on US 10 year Treasuries dipped briefly below 2 per cent, its lowest level since 1954 according to the Wall Street Journal, before paring back to 2.06 per cent. That came at the expense of the growth-linked assets such as the kiwi and Australian dollars.

"We saw what happened to equities on Friday and at the moment the (New Zealand) currency is just tracking equities," said Khoon Goh, head of market economics and strategy at ANZ.

"Everything is based on what is happening globally and there are increasingly more recession fears especially in the US and Europe. I don't think any of the major houses are calling a recession just yet but it's getting pretty damn close."

On the crosses, the New Zealand dollar recently traded at 78.61 Australian cents, down from 79.36 cents on Friday in New York, and fell to 62.61 Japanese yen from 62.79 yen previously. It dropped to 56.84 euro cents from 57.51 cents last week, and declined to 49.64 pence from 49.81 pence.

Fears over a sovereign debt crisis in Europe resurfaced after Germany strongly rejected mounting calls for a joint euro bond over the weekend, saying it would not agree to the measure until economic policy was more centrally aligned. That closed the door on hopes some investors were fostering for a quick fix to the sovereign debt crisis.

The Bank of Japan signalled it is considering easing monetary policy further to tackle the sharp increase in the yen, which has seen high demand for investors looking for a safe haven currency.

Goh said the kiwi may trade between a range of 80.90 US cents and 82.20 cents with activity likely to tilt towards sideways trading with a slight downward bias.