RBNZ keeps out of FX markets in September, may have another go pushing kiwi lower

Thursday 30th October 2014

The Reserve Bank wasn't actively trying to influence foreign exchange markets in September, based on its transactions, though it may be poised for another intervention after the Federal Reserve outlined its path to higher interest rates, fuelling demand for the greenback.

New Zealand's central bank had a net outflow of $30 million in September, following August's $521 million net sale of local currency, according to RBNZ data. Governor Graeme Wheeler today reiterated his view that the kiwi's strength is “unjustified and unsustainable” and that the local currency should go through "further significant depreciation" to limit the impact on the nation's tradable sector.

The kiwi slumped today after the Federal Open Market Committee wound up its quantitative easing programme and said it saw sufficient strength in the broader economy as the labour market improves. The prospect of higher US interest rates has stoked demand for the greenback in recent months, and meets one of the Reserve Bank's criteria to intervene in currency markets, which is that it has a chance of succeeding.

"We can say that they did not intervene in September - there was some wondering whether that was the case," said Imre Speizer, senior market strategist at Westpac Banking Corp in Auckland. "I wouldn't rule it out even in the next week two because it's all about being opportune, and they were handed an opportune gift from the FOMC this morning."

Speizer said the Reserve Bank wants to intervene when the US dollar is rising, which he expects to happen in the week ahead.

The kiwi recently traded at 78.05 US cents from 79.37 cents immediately before the Fed statement.

The Reserve Bank today kept the official cash rate at 3.5 percent, as expected, while dropping its tightening bias as inflation remains unexpectedly low.

BusinessDesk.co.nz

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