Wednesday 10th November 2010 |
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Reserve Bank Governor Alan Bollard said the market has misinterpreted recent data in its rush to buy kiwi dollars, taking too much heart from improving figures on jobs and retail sales. The kiwi dollar tumbled.
“If there’s some misinterpretation of New Zealand data as we feel there might have been over the last couple of weeks then we’d look to the market to correct that,” Bollard told reporters in Wellington. “Unemployment data, and retail trade data were broadly what we were expecting” and the bank’s “not seeing any fundamental change in New Zealand’s economy.”
He said the kiwi’s strength against the US dollar, and recent volatility on a trade-weighted basis was outside the central bank’s control and he talked down the ability of the bank to push down the currency through intervention.
“If the New Zealand dollar stabilises at a high level, it reduces pressure on monetary policy” and slower increases in interest rates should deter investors in the kiwi, he said.
The bank may intervene in foreign exchange markets when the exchange rate is exceptionally high or low, is unjustified by economic fundamentals, won’t impact on price stability, and will have a reasonable chance of success, according to its published guidelines. The last time intervention speculation reared its head was in September last year.
Tim Kelleher, head of institutional FX sales New Zealand at ASB Institutional, said any intervention would have to be a trade-weighted deal, but it was still too early for the bank to get involved. The last time it entered the market, the trade-weighted index was at about 72/73, he said.
“There’s no chance of intervening here – the RB would come out and give clear signals” and that hasn’t happened, he said.
The kiwi dollar dropped 0.8% to 77.71 US cents and 0.6% to 68.91 on the TWI after the announcement, and was already under pressure as the greenback rallied amid heightened concerns over European debt.
“Bollard added fuel to the fire” when “he took the financial stability report and turned it into an MPS (monetary policy statement),” Kelleher said.
Businesswire.co.nz
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