NZ dollar slides to 6-week low as RBNZ's Wheeler invokes intervention criteria
By Paul McBeth
July 24 (BusinessDesk) - The New Zealand dollar dropped to a six-week low after Reserve Bank governor Graeme Wheeler explicitly invoked one of the criteria to intervene in currency markets in calling the kiwi's strength "unjustified."
The kiwi sank to 85.83 US cents at 5pm in Wellington from 87.02 cents immediately before the RBNZ release, and 86.81 cents yesterday. The trade-weighted index dropped to 87.07 from 80.82 yesterday.
Wheeler raised the official cash rate a quarter-point to 3.5 percent and indicated the RBNZ would assess the impact of its four increases, while saying kiwi dollar strength was “unjustified” and that the currency could have “a significant fall.” The Reserve Bank’s intervention policy includes a requirement that the currency must be “unjustified” based on a range of economic fundamentals, and must be at an exceptionally high or exceptionally low point in the cycle.
"The use of the exact word in the RBNZ's intervention bible - that's why the market reacted," said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional in Auckland. "You'd normally see the kiwi go 1 US cent in our time zone, it's been capped at 86.25/50, and might move to 85.50 overnight."
Wheeler's jawboning of the currency comes after Finance Minister Bill English yesterday reiterated his view the kiwi was "unsustainably high" telling BusinessDesk on the sidelines of a Trans-Tasman Business Circle lunch in Wellington that “almost anyone who has looked at it comes to the conclusion it’s somewhere 10 to 15 percent overvalued.”
ASB's Kelleher said a sustained fall will need a stronger US dollar, which may get a boost if figures next week support growth prospects in the world's biggest economy.
New Zealand government figures today showed a trade surplus of $247 million in June, from a revised $270 million in May and $371 million a year earlier. The annual trade balance turned to a surplus of $1.2 billion from a deficit of $819 million a year earlier. The figures beat expectations for a monthly surplus of $150 million and an annual surplus of $1.15 billion in a Reuters poll of economists.
Global demand for New Zealand dairy products has underpinned the country's exports over the past 18 months, though prices have dropped this year amid increased supply. Fonterra Cooperative Group's board will review the milk price it expects to pay farmers next week, and economists are forecasting a lower payout.
ASB's Kelleher said there's a downward revision in the price that would be another negative for the kiwi dollar.
The local currency dropped to 87.07 yen at 5pm in Wellington from 88.03 yen yesterday, and declined to 90.84 Australian cents from 92 cents. It fell to 63.77 euro cents from 64.47 cents yesterday, decreased to 50.38 British pence from 50.84 pence.