NZ dollar slumps to year low after RBNZ's Wheeler jawboned it below 80 US cts
By Tina Morrison
Sept. 26 (BusinessDesk) - The New Zealand dollar slumped to its lowest in more than a year after Reserve Bank governor Graeme Wheeler yesterday jawboned it through a key support level of 80 US cents, by saying in an unscheduled statement that the level of the currency is unjustifiable and unsustainable, signalling the bank is prepared to intervene to push the kiwi lower.
The kiwi dropped as far as 79.08 US cents, and was trading at 79.18 cents at 8am in Wellington, from 79.92 cents at 5pm yesterday and 80.67 cents immediately before Wheeler's statement was released at 2pm yesterday. The trade-weighted index fell to 76.98 from 77.60 at 5pm and 78.24 at 2pm.
Governor Wheeler yesterday reiterated earlier comments that the New Zealand dollar should be lower given weaker commodity prices, saying the 4 percent fall in the TWI since its July highs didn't sufficiently reflect the 45 percent plunge in dairy prices since February. Dairy products are New Zealand's largest commodity export. Wheeler said the New Zealand dollar is susceptible to "significant downward adjustment" over the coming six to nine months, as a stronger US economy boosts demand for the greenback.
"The market has latched on to governor Wheeler's comments about the possible extent of the falls," ANZ Bank New Zealand senior foreign exchange strategist Sam Tuck said. "It came at a fairly opportune time as there were pretty decent support levels around 80 US cents - the market seems to have quite comfortably blown through those levels and that will now provide decent resistance."
The kiwi's weakness comes amid broad US dollar strength, Tuck said.
The New Zealand dollar may consolidate given its sudden decline, with the next major support level around 78 US cents to 78.50 cents, Tuck said.
"I would see us grinding lower rather than accelerating," he said.
Wheeler’s comments come ahead of the Reserve Bank’s release on Monday of data showing whether it has intervened in the currency market in August.
The monthly data will be closely watched and investors are unlikely to want to buy the kiwi ahead of that release, Tuck said.
The New Zealand dollar fell to 90.14 Australian cents, from 90.58 cents at 5pm and 91.01 cents at 2pm.
The local currency declined to 62.12 euro cents from 62.60 cents at 5pm and 63.10 cents at 2pm, and dropped to 48.52 British pence from 48.97 pence at 5pm and 49.39 pence at 2pm. It slid to 86.04 yen from 87.21 yen at 5pm and 88.04 yen at 2pm.