Kiwi sinks on RBNZ intervention, PM's 'Goldilocks' comment
By Paul McBeth
Sept. 29 (BusinessDesk) - The New Zealand dollar dropped to a 13-month low after figures confirmed the Reserve Bank intervened in foreign exchange markets last month in a bid to reinforce its downward trajectory, and after Prime Minister John Key said he'd prefer a weaker currency and picked 65 US cents as "Goldilocks" level - neither too high nor too low.
The kiwi fell as low as 77.07 US cents, the lowest since Aug. 5 last year, trading at 77.45 cents at 5pm in Wellington from 78.27 cents immediately before the release. The kiwi traded at 78.64 cents at 8am and 78.61 cents on Friday in New York. The trade-weighted index fell to 75.61 from 76.89 on Friday in New York.
Reserve Bank figures today showed the central bank sold a net $521 million in August, confirming market speculation it had been active on the market last month. Governor Graeme Wheeler last week surprised markets with an unscheduled statement reiterating two previous statements since July saying the kiwi was unsustainably and unjustifiably high, two conditions he said were important considerations for the bank when intervening in currency markets. Similar statements were made in both July and the September monetary policy statement.
New Zealand’s currency had already dropped about 30 basis points in the lead-up to the release of the RBNZ figures after Prime Minister John Key was reported as saying he preferred a weaker currency, and thought fair value was around 65 US cents, according to the interest.co.nz website.
Key was quoted in answer to questions about his preferred level for the kiwi dollar as saying: "In the end the Goldilocks rate -- not to high, not too low, just about right -- I don't know, 65 US cents maybe -- lower than it is today."
Martin Rudings, senior dealer foreign exchange at OMF in Wellington said: "The size of the $521 million of intervention is fairly insignificant, but shows the intent is there", but that Wheeler "couldn't have got the currency lower without a strong US dollar."
The kiwi has been on the decline since July as global investors started rallying behind the greenback on growing expectations the Federal Reserve will start raising interest rates as the world's biggest economy gathers momentum.
OMF's Rudings said investors had to wait a little longer after the unseasonably cold US winter at the start of the year held back the recovery.
US government figures last week showed the world's largest economy grew at a revised 4.6 percent annual rate in the second quarter, ahead of the previous estimate of 4.2 percent.
The local currency dropped to 88.93 Australian cents from 89.67 cents on Friday in New York, and sank to 84.70 yen from 85.90 yen. It fell to 61.07 euro cents from 61.97 cents last week, and declined to 47.72 British pence from 48.38 pence.