NZ dollar extends slide as RBA’s Stevens mulls intervention
The New Zealand dollar extended its declined after Reserve Bank of Australia governor Glenn Stevens said he was "open-minded" on intervening in currency markets if the conditions were right to try and take the steam out of a persistently strong Aussie dollar.
The kiwi dropped to 81.83 US cents at 8am in Wellington from 82.55 cents at the local close of trading yesterday. The trade-weighted index sank to 76.85 from 77.33.
RBA's Stevens told economists in Sydney intervening hasn't passed the central bank's test for cost effectiveness in the Australian dollar's rally since the global financial crisis, but that it isn't off the table and the bank is "open-minded" about it.
"Our position has long been, and remains, that foreign exchange intervention can, judiciously used in the right circumstances, be effective and useful," Stevens said. The Australian dollar dropped to 92.20 US at 8am in Wellington from 92.92 cents immediately before the speech was released.
"The key event for Australasia was the speech by RBA governor Stevens," said Kevin Morgan, senior dealer at HiFX in Auckland. "That weighed on the Aussie and also on the kiwi."
Stevens's comments come a day after the International Monetary Fund said the Australian dollar was overvalued by about 10 percent, and a week after the RBA complained of the currency's strength when it decided to keep its key rate unchanged at 2.5 percent. The kiwi was little changed at 88.72 Australian cents at 8am from 88.64 cents yesterday.
The trans-Tasman currencies have been under pressure this week after minutes to the last US Federal Reserve policy meeting showed the US central bank expects the world's biggest economy is recovering in line with expectations, which would warrant eventually dialling back its US$85 billion monthly asset purchases.
Traders are looking to today's speech by Reserve Bank assistant governor John McDermott on the influences on the exchange rate. The central bank has been balancing a heating property market, which threatens to fuel increases in consumer spending, against the strong currency cooling imported prices.
The local currency fell to 82.65 yen from 82.85 yen yesterday, and declined to 60.82 euro cents from 61.48 cents. It dropped to 50.66 British pence from 51.29 pence yesterday.