HiFX's senior dealer Dan Bell and Bernard Hickey looked in their weekly 'Never a Dull moment' review at the New Zealand dollar's continued slide towards 78 USc as investor nervousness over the European debt crisis and slower global growth triggers a move to take 'risk off' from 'risky' currencies such as the New Zealand dollar.
The New Zealand dollar fell sharply last week as political worries in Greece and France dominated the headlines, increasing fears of more turmoil in financial markets.
It broke below of its 80.5-83 USc range of the first four months of 2012.
Those fears deepened this week with surprising results in Greece, where pro-Austerity parties were hammered, and in France where pro-Austerity president Nicholas Sarkozy was booted out.
The New Zealand dollar slide to a a low of 78.2 USc, having started the week at closer to 80 USc.
Surprise news from JP Morgan early on Friday of US$2 billion of losses in 'synthetic credit' trading also unnerved markets.
"Particularly in the derivatives market, which can be notoriously opaque," Bell said.
"There's been more risk aversion this morning and that follows on from quite a negative week on the election results in Greece and the change of leadership in France," he said.
The New Zealand dollar was also weak against both the British pound and the Euro, given its status as a 'risk' currency that is hit whenever investors take their money back to safe havens such as the US dollar or yen.
Bell said there was support for the New Zealand dollar around 78.2 USc. If that broke the next support level was likely to be around 77 USc, and then on down to 75 USc.
"If we continue to see this uncertainty in Europe then the path of least resistance is down," he said.
"The markets are notoriously manic-depressive. You've had a few economists come out in the last week or two and highlighting that they see further potential for QE III from the US central bank. If that comes about you may well see a turn in the New Zealand dollar, but right here and right now, the tone is very negative and you could see more downside."
Markets would focus on the Greek situation, along with bond auctions in Spain and Italy over the coming week, he said.
(Updated with more detail on NZ$ support levels)
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Dan Bell is the Senior Dealer at HiFX, a UK-headquartered foreign exchange dealer with significant operations in Australia and New Zealand. It has a dealing room in Auckland. See more detail here.
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