Kiwi slides after RBNZ confirms currency intervention, takes shot at housing

The New Zealand dollar dropped to a two-week low after the Reserve Bank confirmed its first intervention in currency markets for six years, and after it took a shot at the country's bubbling property market.

The kiwi fell as low as 83.62 US cents, trading at 83.97 cents at 5pm from 84.55 cents at 8am and 84.94 cents yesterday. The trade-weighted index dropped to 77.66 from 78.58.

Central bank governor Graeme Wheeler told politicians in Wellington that the bank had intervened in currency markets to "potentially take the tops off rallies".

He did not provide any details, though deputy governor Grant Spencer said the action would show up on the bank's balance sheet.

"I think you'd assume it's bigger than usual," says Tim Kelleher, head of institutional FX sales NZ at ASB Institutional in Auckland. "The kiwi's at the bottom end of the range after failing to go through."

The RBNZ sold a net $199 million of New Zealand dollars in December in the course of its normal market operations when the trade-weighted index was an average 73.92, adding to the $64 million sold in November, according to Reserve Bank figures.

Mr Wheeler's comments followed an earlier lament about the strength of the currency at the release of the bank's six-monthly financial stability report, where he warned about the strength of the country's housing market and its threat to the financial system.

That comes as the bank mulls the use of incoming macro-prudential tools to help cool asset bubbles, including the possible introduction of restrictions on low-equity home lending.

Sue Trinh, currency strategist at RBC Capital Markets in Hong Kong says the central bank's move to introduce tougher macro-prudential policies to cool the housing market was "de facto tightening" and should lead to a "paring back" in analysts' expectations for New Zealand interest rates.

Traders are betting the Reserve Bank will lift rates 4 basis points over the next 12 months, according to the Overnight Index Swap curve, down from 6 points yesterday, and as much as 37 points in February.

The local central bank comments follow the Reserve Bank of Australia's decision yesterday to cut its target cash rate a quarter-point to 2.75 percent to stoke economic growth, citing the country's lower than expected pace of inflation and strong exchange rate.

The kiwi fell to 82.43 Australian cents from 83.50 cents yesterday.

It fell to 64.13 euro cents from 64.92 cents yesterday and dropped to 54.28 British pence from 54.63 pence. It slid to 83.126 yen from 84.15 yen yesterday.

(BusinessDesk)