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."
This article is tagged with the following keywords. Find out more about MyNBR Tags
Most listened to
- Tim Hunter on why Veritas is doing it the hard way
- Matthew Hooton on whether Steven Joyce will be the next national leader
- Rodney Hide on why all city planners should be fired
- Nevil Gibson discusses his latest Editor's Insight on films
- The NBR crew throw around some of the week's top stories
- Rob Hosking breaks down the political and economic week that was
- "A tragedy" - David Farrar on his disappointment with Simon Bridges
- New F&P product pipeline exciting, says Macquarie senior investment adviser Brad Gordon
- Taupo Motorsport Park executive director Tony Walker on the park's rebranding
- NZIER senior economist Christina Leung on why she does not think the OCR will hit 2%
- NBR's Cameron Officer talks about the NBR Car of the Year 2015
- John Barnett on Brewer: ‘Boy, has he got a bit to learn’