Reserve Bank intervenes in currency markets

NBR reports:

The Reserve Bank says it intervened in foreign exchange markets in an attempt to drive the kiwi lower. It gave no details of the size of the intervention.

The kiwi tumbled to 83.90 US cents from 84.48 cents before governor Graeme Wheeler’s comments were telegraphed at the finance and expenditure select committee in Wellington. The trade-weighted index dropped to 77.71 from 78.17.

The comments come after Mr Wheeler said in a briefing for the six-monthly financial stability report today that the currency was “significantly overvalued”.

“That intervention will not materially change the level of the exchange rate but could take potentially the tops off rallies,” Mr Wheeler told the committee. “In terms of activity, there’s been an intervention.”

The size of the bank’s action would show up on its balance sheet, deputy governor Grant Spencer told the same meeting.

This is an independent decision of the Governor. It has happened once or twice before. I am skeptical of the ability of the Reserve Bank to move the level of the NZ dollar in the long-term as our reserves are much smaller than others. However if they have correctly calculated that the currency is over-valued, then they may take the edge off the dollar without it costing taxpayers money.

As I have said previously, I think the issue is more the weakness of the US dollar and the Euro, not the strength of the Kiwi.