NZ dollar drops below 80 US cts after Wheeler says level unjustified
By Paul McBeth
Sept. 25 (BusinessDesk) - The New Zealand dollar dropped below 80 US cents for the first time since September last year after Reserve Bank governor Graeme Wheeler said the currency was still unjustifiably high, a consideration he takes into account as to whether intervention is appropriate.
The kiwi fell as low as 79.91 US cents, trading at 79.94 cents at 5pm in Wellington, down from 80.73 cents at 8am and 80.80 cents yesterday. The trade-weighted index dropped to 77.62 from 78.15 yesterday.
Wheeler reiterated his view the local currency's strength was "unsustainable and unjustified", which he called "important considerations in assessing whether exchange rate intervention is feasible" along with whether on-market activity would be effective.
Wheeler's jawboning comes ahead of Reserve Bank figures on Monday which will show whether the central bank was active in the foreign exchange market in August. Speculation the bank intervened prompted the kiwi to spike lower on the morning of Aug. 25.
"(European Central Bank president Mario) Draghi talked the euro lower yesterday, and Wheeler's done the same thing today - he's been quite effective," said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional in Auckland. "This is not just a kiwi story, the US dollar's strong across the board with the DXY (Dollar Index) above its five-year trend line."
ASB's Kelleher said the currency has strong support between 80 US cents and 80.50 cents, and would head towards 78 cents if that level breaks.
The local currency has dropped from a peak 88.35 US cents on July 10 as global markets anticipate the US Federal Reserve will start hiking interest rates earlier than expected, and as local commodity prices of logs and dairy come off, eroding returns for two of New Zealand's biggest exports.
Commodity-linked currencies such as the kiwi, Australian and Canadian dollars have been on the decline this week amid fears China's economy may be faltering, and the Wall Street Journal today reported the ruling Communist Party may be looking to replace Zhou Xiachan as the governor of the People's Bank of China.
The local currency dropped to 87.22 yen at 5pm in Wellington from 87.67 yen yesterday, and declined to 90.56 Australian cents from 91.08 cents. It fell to 62.59 euro cents from 62.85 cents yesterday, and decreased to 48.98 British pence from 49.25 pence.