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Dollar drops after Wheeler says RBNZ may intervene to sell currency

The New Zealand dollar dropped half a cent after Reserve Bank governor Graeme Wheeler said the bank may sell the currency should it remain high while export prices weaken.

The kiwi fell as low as 86.95 US cents, from 87.41 cents immediately before the 9:30am release of the speech, and was recently trading at 87.15 cents. Overnight, the New Zealand dollar touched 87.79 US cents, the highest level since its post-float high in August 2011 of 88.40 cents. The trade weighted index touched a record 81.21 overnight and was recently trading at 80.68.

"If the currency remains high in the face of worsening fundamentals, such as a continued weakening in export prices, it would become more opportune for the Reserve Bank to intervene in the currency market to sell New Zealand dollars," Wheeler said in speech notes for delivery to the DairyNZ Farmers' Forum in Hamilton. "The Reserve Bank considers that the exchange rate is overvalued and does not believe its current level is sustainable."

Investors favour the New Zealand dollar as a resurgent economy led to the country being the first in the developed world to raise interest rates this year, following the global financial crisis. The central bank has hiked the benchmark rate twice in the last two months and signalled more rises are planned.

However, Wheeler today signalled rate rises may not be as regular as previously assumed if the exchange rate remains strong.

That would weaken tradables inflation and be a factor in the bank's view of the "extent and speed" of hikes in interest rates, Wheeler said.

"When the exchange rate rises there is less need to hike," said Imre Speizer, senior market strategist at Westpac Banking Corp. in Auckland. "It seems like a long time ago that we heard anybody talking about the potential for intervention, so it's been raised, causing a fall in the kiwi, clearly, and I think there might be further fall out from this tonight. It perhaps implies they're a little bit closer to the possibility of intervention."


Comments and questions

And this worked so well last time? Let market forces prevail. We have a trade surplus. Markets are still buying our goods. What Mr Wheeler is saying is ‘the raising of interest rates has caused our dollar to rise, in other words my policy has failed’.
Stop listening to the greens labour etc. If as expected unemployment has dropped then it just proves that the RBNZ has no idea on what it is doing.

I agree with your comments.
The RBNZ also introduced the OBR, apparently they know more than the entire OECD who favour Bank deposit insurance.

The smartest thing Wheeler can do is admit that all this interference causes yet more problems, sit back and leave market forces to work their own magic. Continual 'fiddling' achieves nothing.

Boo - just like Sully in Monsters Inc


Hes trying to tell markets to ignore 101 economics

"Wheeler says RBNZ may intervene to sell currency"

Is he now admitting (and agreeing with me), that we do not have, and have never had, a free floating currency?

The Reserve Bank doesn't have the size to make more than a temporary dent in the exchange rate by selling. The only way that the dollar will drop is by decreasing the OCR and hoping the US economy goes ballistic.

You are right on the mark there FX man. Cheaper Kiwi to be had in the next 24 hours, shame the exporters orders are well below its likely trading range as are the stops from longs.

What about printing a few billion kiwi fiats and flogging those off?

Good time to sell..

Yes yes, voodoo economics and all that. But still, god it must be tempting. And the overall effect on the value of the dollar will probably be minimal. At the current xchange rates the country could make a quick killing. build a few more motorways or pay down debt etc.

Otherwise, the only thing going to make any difference is what FX Trader outlines above.

Still, the correction will come, and will be sharp I suspect.

NZ does everything possible to attract foreign purchasing of the NZD. i.e. Increased dairy exports to China, property market attracting foreign interests, higher immigration, increase interest rates comparable to global rates, sell assets, approve foreign operators to set up in NZ, etc. and then complain when the Kiwi dollar rises. Free market economy !!!

quite like a high dollar myself!

Awesome, a transfer of consumer purchasing power to prop up exporters because other markets are failing. Sounds fair.

Most people know the high interest rates are attracting "hot" money into the NZ $. which is pushing up the exchange rate.
The reason why the interest rates are so high is because the National Government can't or won't control house price inflation due to self interest.

John Key is making the balancing act very hard for the Reserve Bank.

I hope it keeps going up so I can buy more on my holidays to Hawaii!!

High interest rates,yeah right. They are at near 50 year lows. Held low, artificially low of course.

Strangely the ex-RB governor swore that interest rates do not affect the effective exchange rate. Now that is a really scary statement by an ex-RB governor in terms of the depth of competency that resided in that official economic unit of NZ. While otherwise its widely accepted that the majority of FX traders watch interest rates closely, as well as other factors, to consider exchange rate trends.