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RBA’s routine IMF payment catches out market on high alert for intervention, people say

A Reserve Bank of Australia currency transaction last month, widely speculated as a sign the bank had intervened to drive down its currency, was actually an uncontroversial payment to the International Monetary Fund, according to people with knowledge of the matter.

In a note to clients last week, Singapore-based UBS currency strategist Gareth Berry speculated that "the RBA's patience may be running out, and that the central bank may have finally begun to lean against the wind - albeit very gently," Bloomberg reported. Berry was referring to the central bank's foreign exchange transaction data for October which showed the bank had sold a net A$330 million of Australian dollars, which he said was "highly unusual" and the biggest imbalance in four years.

Governor Glenn Stevens has put financial markets on high alert by hinting that he stands ready to intervene in currency markets to tackle an Australian dollar he regards as over-valued. Deputy governor Philip Lowe echoed his views this week, while noting the threshold for intervention "is very high". The IMF has said Australia's currency is about 10 percent overvalued.

The Reserve Bank has the currency in focus because its strength is hindering the Australian economy's transition from mining investment to growth led by sectors such as manufacturers, whose overseas sales get eroded when they're brought back into Aussie dollars.

The A$330 million net sales last month wasn't an attempt to drive down the currency but reflected the central bank selling Australian dollars to buy foreign currency for an IMF payment, the people said.

The Australian dollar has dropped to 90.77 US cents from its four-month high of 97.55 cents last month. It fell below parity with the greenback in May.

The sell-off in the Aussie has contributed to a surge in the New Zealand dollar against its Australian counterpart, with the kiwi touching a five-year high of 89.97 Australian cents yesterday. Currency traders say it may be headed up towards previous highs of 94.50 Australian cents, creating a headwind for New Zealand exporters selling into the nation's largest market.

New Zealand's Reserve Bank is scheduled to publish a report on its October currency flows at 3pm today, though market participants aren't expecting it to show any intervention.