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Kiwi sinks after governor outlines intervention criteria

The New Zealand dollar shed more than half a US cent after Reserve Bank governor Graeme Wheeler outlined the central bank's criteria to intervene in currency markets, and said he was prepared to act when those were met.

The kiwi fell to 84.04 US cents at 5pm in Wellington from 84.61 cents immediately before his speech and down from 84.37 cents yesterday. The trade-weighted index dropped to 76.30 from 76.77 yesterday.

Mr Wheeler told the New Zealand Manufacturers' and Exporters' Association the kiwi is significantly over-valued, and he "will intervene when the circumstances are right".

The RBNZ can intervene in currency markets when the kiwi is at exceptional levels that are not justified, is consistent with monetary policy, and when it will work. It last intervened in mid-2007.

"I don't think they're looking at intervening now – it needs to be quite a bit higher," says Tim Kelleher, head of institutional FX sales NZ at ASB Institutional. "He'd be pretty proud of his work" in talking down the kiwi.

Mr Wheeler also reaffirmed the central bank's forecasts for the official cash rate to remain unchanged until next year, and said "a higher exchange rate relative to expectations will lead to a lower than expected OCR".

"The market priced in rate hikes quite aggressively and he basically said rates are on hold until the end of 2013," Mr Kelleher says. He expects buyers to emerge at 83.50/83.80 US cents.

New Zealand's currency got a boost earlier today from a 3.1 percent across all dairy products sold on Fonterra's online trading auction. That was just 12 hours after reports China's quarantine authority destroyed branded NZ-produced milk powder.

The kiwi fell to 54.41 British pence from 54.56 pence and declined to 62.66 euro cents from 63.22 cents. It dropped to 81.14 Australian cents from 81.72 cents and decreased to 78.54 yen from 79.08 yen.

(BusinessDesk)

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Comments and questions
8

Stuff the Manufacturers' and Exporters' Association. I hope the dollar goes higher and higher and higher. That means my consumer goods that I have to buy to LIVE from day to day are cheaper, and if I need to travel I get good value for my dollar. So, keep rising Kiwi dollar, and the Reserve Bank governor needs to shut his mouth and stop trying to "talk the dollar down".

China won't let you Mr Wheelie.

Just goes to show what a load of rubbish J Key, Wheeler and English speak! I only wish normal Joe Blow Kiwis were smart enough to see what a pack of liars are in power. They all state that there is nothing they can do to lower the kiwi yet even mentioning they will do something takes the pressure off. Imagine if they actually acted and did something - of course, they could lower it but higher powers than them want the kiwi to be strong. The bubble will eventually burst and the money men will make even more money betting on the fall of the Kiwi. Corruption at its worst.

Has anyone done any studies about the intervention in mid-2007? Did it achieve anything, and at what cost?

More hot air from the fantastically well renumerated governor of the RBNZ. He will do exactly what he is told to do by his political masters.

Here is what the Wall Street Journal are reporting that the Western Union Western Business Solutions Corporate Dealing Manager Chris Hunter said: He expects the dip to be short-lived as the market will likely shrug off the comments. "There's no real change to the bank's stance here," he said.
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So, nice try Governor - but your pandering talk to the Manufactures Association looks like it will have a very short effect on the Kiwi Dollar.
Go Kiwi dollar go - keep on rising and making it easier for us all to meet our day to day expenses. A plummeting Kiwi Dollar would be an absolute disaster for this country.

Thank you, governor.
NZ must not do anything that tilts conditions in favour of manufacturers or any sector. To do so tilts it against other sectors. This is self-evident.
As has been happening for the last 23 years.
Unfortunately, after we are through the "recession" and the selfish elect Labour, then the governor will have beat up on the exporters once again to compensate for govt profligacy. How can we stop it happening??

The fact that we have a person in this position or role speaks of how little we are prepared to let our dollar 'float' as was the original intention. The dollar will settle where it settles and not because of intervention, but because the market sets the value. That is how real economies work. Stop fiddling. These buffoons achieve nothing by tinkering apart from exposing their lack of understanding of fundamental economics.