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.
This article is tagged with the following keywords. Find out more about MyNBR Tags
- Regional economic development, job creation and immigration key priorities for the Coalition
- What's in the Labour/NZ First agreement for businesses? Not much, so far
- Rent-to-buy to become part of KiwiBuild under Greens-Labour confidence and supply agreement
- English: I’m not going anywhere
- Ardern: new government will follow Labour's immigration policy, not NZ First's
Most listened to
- Lewis Road ceo Peter Cullinane says Southern Pastures was the best fit of potential investors they spoke to
- Telecommunications Users Association's Craig Young says Vocus are getting ready for a familiar experience, getting sold
- Labour leader Jacinda Ardern and NZ First leader Winston Peters discuss their foreign ownership plans
- Rodney Hide, unlike the public, is unsurprised at the insanity of politics
- Jacqueline Rowarth on how food production advances have influenced our consumption habits
- NBR Radio: The best interviews, with Grant Walker — updated daily