27 Dec 2012

NZ dollar continues fall ahead of fiscal cliff

9:34 am on 27 December 2012

The New Zealand dollar fell against most major currencies as the looming US fiscal cliff sapped risk appetite, stoking demand for the greenback, and investors continued to unwind long positions in the kiwi and Australian dollars.

The New Zealand dollar on Thursday morning fell to US 81.76 cents from US 82.15 cents in Asian trading on Wednesday. The trade-weighted index fell to 73.33 from 73.68, AAP reports.

President Barack Obama is set to return to Washington early Thursday as he attempts to forge an agreement between Democrats and Republicans to prevent about $US600 billion in tax increases and spending cuts from taking effect on January 1.

As the deadline looms, the greenback has strengthened as investors are drawn back to the world's reserve currency.

"The fiscal cliff cannot be doing any favours" for growth-linked currencies such as the kiwi, said Tim Kelleher, head of institutional FX sales at ASB Institutional. The kiwi has also fallen amid "a continuation of the unwinding of long positions," he said.

A long position is a bet a security or currency is set to rise. The kiwi dollar was "overheated" when it topped US 84 cents in mid-December, he said. Still, the currency should find support around 81.50 cents because exporters "are pretty happy to buy back down here".

The New Zealand dollar traded at 70.05 yen from 70.08 late Wednesday.

Japan's next finance minister, Taro Aso, reportedly said the government is looking at comprehensive measures to counter the yen's strength.

The kiwi was on Thursday morning trading at 50.70 British pence, 61.82 euro cents and 78.85 Australian cents.