WELLINGTON (Dow Jones)--The New Zealand dollar was lower late Wednesday as renewed concerns about the state of Europe's financial sector prompted an overnight reversal of risk sentiment.
BNZ currency strategist Mike Jones said risk aversion was stoked by news that German banks may be required under new banking rules to set aside an extra EUR105 billion in capital, as well as an article in The Wall Street Journal that questioned the integrity of July's European bank stress tests.
The Wall Street Journal reported Tuesday that European bank stress tests underestimated the exposure of some major banks to sovereign debt, reviving fears over the health of European banks and raising doubts over the legitimacy of the euro's recent gains.
"With investors becoming more risk averse, some of the recent New Zealand dollar enthusiasm was crimped as investors sought out the relative 'safe-haven' of currencies like the U.S. dollar, Japanese Yen and the Swiss Franc," he said.
HIFX director of trading Mike Hollows said the weaker New Zealand dollar/Australian dollar cross rate was also weighing on the kiwi.
"There was some sort of knee jerk reaction of buying the Aussie after the finality of the election outcome," he said, noting there was also some talk of moves in China to buy the Australian dollar.
Australia's Labor Party Tuesday secured a second term by one vote, ending a two-week deadlock.
Hollows added there was little data to move the New Zealand dollar overnight.
"The kiwi looks pretty stable in broad terms, it is just testing the support level of US$0.7160, which it broke out of last week," he added.
Jones said the near-term focus for the New Zealand dollar is expected to remain offshore.
New Zealand government bonds rallied slightly but under performed moves in the New Zealand interest rate swap market due to the Debt Management Office announcing a NZ$350 million tender earlier in the day, a local bond trader said.
The DMO is offering NZ$100 million of April 2015, NZ$50 million of December 2017, and NZ$200 million of May 2021 paper.
-By Lucy Craymer, Dow Jones Newswires; 64-4-471-5990; lucy.craymer@dowjones.com
