Dollar falling, PM Key calls intervention ‘la la land stuff’

Dollar falling, PM Key calls intervention ‘la la land stuff’

By Paul McBeth

April 23 (BusinessDesk) – The New Zealand dollar drifted lower today as Prime Minister John Key dismissed calls for intervention to weaken it the stuff of “la la land”.

The kiwi fell to 81.62 US cents at 5pm from 81.73 cents at 8am and was down from 81.87 cents at the close of trading in New York last week. The trade-weighted index fell to 76.72 from 72.82 on Friday.

The Labour and Green parties have called in recent days for the Reserve Bank of New Zealand to be given powers which Greens leader Russel Norman says would “reduce the pressure on the exchange rate and the tradeable sector by empowering the Reserve Bank with a mandate beyond inflation control to include managing exchange rate levels and volatility.”

Labour’s finance spokesman David Parker has also reiterated his party’s pre-election policy to amend the Reserve Bank to allow consideration of a wider range of factors in setting monetary policy, most of which are standard practice in Australia.

Australia is the foreign exchange market focus in this part of the world, where inflation figures out tomorrow are expected to be a precursor for a rate cut across the Tasman next month.

Prime Minister Key said the government was doing what it can to support monetary policy by running a tight fiscal policy, which removes pressure from the Reserve Bank.

That comes ahead of Thursday’s RBNZ official cash rate review, where Governor Alan Bollard is expected to keep the benchmark rate on hold at a record low 2.5 percent.

Traders have pared back bets on future rate hikes, and think the central bank will add 16 basis points over the coming 12 months, according to the Overnight Index Swap curve.

Key said: “I don’t believe in intervention – never have and frankly never will. I spent my professional life looking at it and it fails.

“Dreaming that we can somehow get the exchange rate down through intervention is la la land stuff.”

Key’s comments come ahead of first-quarter consumers price index figures in Australia tomorrow, which are expected to show inflation of 0.6 percent, according to a Reuters survey of economists. The Reserve Bank of Australia has held off cutting its 4.25 percent target cash rate ahead of these figures.

Chris Weston, market strategist at IG Markets in Melbourne, said the “CPI might have a small bearing on the New Zealand dollar” and could see some “downside off the back of that.”

Risk-sensitive currencies such as the trans-Tasman currencies got a boost at the end of last week after the International Monetary Fund secured commitments worth US$430 billion for a bail-out fund.

The HSBC China Manufacturing Purchasing Managers Index, a gauge of nationwide manufacturing activity in the world’s second-biggest economy, rose to a two-month high today. Still, a reading below 50 indicates contraction from the previous month, and this month’s report is its sixth in a row.

The kiwi dollar will probably fall this week as investors push out the timing of an expected rate hike by the Reserve Bank of New Zealand, according to a BusinessDesk of strategist.

The New Zealand dollar was little changed at 78.87 Australian cents from 78.79 cents last week, and fell to 66.36 yen from 66.76 yen. It was almost unchanged at 61.89 euro cents from 61.90 cents last week, and fell to 50.5 pence from 50.70 pence.

(BusinessDesk)

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