Dollar stays lower after Reserve Bank intervenes

By NZPA

Tuesday 12th June 2007

The Reserve Bank's intervention yesterday to try to push down the value of the New Zealand dollar appeared to keep working overnight.

The central bank sold NZ dollars and bought US dollars yesterday as the kiwi remained above US76c, having crossed that level early Saturday for the first time since the NZ currency was floated 22 years earlier.

The NZ dollar peaked at a new post-float high around US76.40c early Saturday (NZT), and was still around US76.25c when rumours of Reserve Bank intervention started circulating about 2.30pm yesterday.

The kiwi then fell sharply against a range of currencies, dropping to US75.30c within half an hour. It bottomed out around 3am today at US74.67c, and by 8am was at US75.20c.

The kiwi also fell sharply against other major trading currencies following the Reserve Bank's intervention.

Around 8am today it was at A89.10c against the Australian dollar from A90.24c 24 hours earlier.

Against the euro it was at 0.5631 from 0.5697 at 8am yesterday, and against the yen at 91.53 from 92.75. The trade weighted index was 73.22 at 8am today from 74.14 yesterday morning.

Bank of New Zealand currency strategist Danica Hampton said the kiwi's US76.40c peak on Saturday had been its highest level since May 1982, and came as the kiwi appreciated more than 2.5% during the week.

The Reserve Bank's intervention yesterday, for the first time since the NZ dollar was floated, involved selling the NZ dollar against the US dollar aggressively through local banks and the electronic dealing platform.

The kiwi remained under pressure against the greenback throughout the offshore session overnight, Hampton said.

A range of global investment banks, macro and model accounts were noted sellers of the NZ dollar against the US and Australian dollars through the night.

It was conceivable that the NZ dollar could move back up towards US76c in coming months, but such a move would need to be supported by a sharply weaker US dollar or it would risk further Reserve Bank action, she said.

Yesterday's decline was the NZ dollar's largest in more than a year, but there was only limited impact on carry trades -- risky trades in which investors buy high-yielding currencies like the New Zealand dollar funded by borrowing low-cost currencies such as the yen and Swiss franc.

"Everyone is looking over their shoulder but for now we are still close enough to highs on the kiwi that if things calm down, it will go higher," said Joe Trevisani, chief market analyst at FX Solutions, in Saddle River, New Jersey.

Dealers said robust risk appetite, supported by gains in global equity markets, could mean buyers dip their toe back into the New Zealand dollar market later this week, barring any further action from the central bank.

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