Monday 29th September 2014
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The New Zealand dollar fell below 78 US cents for the first time in more than a year after the Reserve Bank published figures showing it intervened in foreign exchange markets in August.
The kiwi dropped to 77.64 US cents, the lowest level since Aug. 30 last year, after data showed the central bank sold a net $521 million into currency markets in August, confirming speculation based on jaw-boning rhetoric from the bank's governor, Graeme Wheeler, that it had been active in the market that month. The currency had traded at 78.27 US cents immediately before the data release.
Wheeler last week surprised markets with an unscheduled statement saying the kiwi was unsustainably and unjustifiably high, two conditions he said were important considerations for the bank when intervening in currency markets. The comments reiterated similar statements in both July and the September monetary policy statement. Last week's jawboning pushed the kiwi to a 12-month low against the backdrop of a lower forecast payout for dairy farmers by Fonterra Cooperative Group and as global investors anticipate rising US interest rates, stoking demand for the greenback.
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.
The August intervention is the first since April last year when the Reserve Bank sold a net $256 million. Before that episode, the bank had last confirmed an intervention in mid-2007 when it sold a net $2.36 billion over three months. It sold a net $1.64 billion over five months in mid-2008 when the kiwi dollar plunged in the lead-up to the global financial crisis.
Today's data shows the Reserve Bank also increased its capacity for currency intervention to $9.56 billion in August from $8.62 billion in July.
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