NZD drops after RBNZ Governor speech

I was fortunate enough to attend the Institute of Directors breakfast where RBNZ Governor Graeme Wheeler was the guest speaker. He spent a lot of time focussing on the overvalued NZD and that keeping the OCR low is a an effort to weaken its value. He did mention that the RBNZ has intervened in the FX market by buying foreign currency with NZD – supply increases therefore value should drop. In assessing whether to intervene in the exchange market, the RBNZ apply four criteria.

1. Is the exchange rate at an exceptional level,
2. Whether its level is justifiable,
3. Is intervention consistent with monetary policy, and
4. Are market conditions conducive to intervention having an impact.

This last factor is especially important given the volume of trading in the Kiwi. In the most recent survey – April 2010 – by the Bank for International Settlements, the Kiwi was the tenth most traded currency in the world with daily turnover of spot and forward exchange transactions totaling around USD $27 billion.

“We can only hope to smooth the peaks off the exchange rate and diminish investor perceptions that the New Zealand dollar is a one-way bet, rather than attempt to influence the trend level of the Kiwi.” Graeme Wheeler – RBNZ Governor

See the graph below for the value of the NZD after his speech.

NZD post speech

One thought on “NZD drops after RBNZ Governor speech

  1. Simon June 3, 2013 / 4:37 pm

    I will be surprised if he is more successful than Bollard was with this. The NZ economy is fundamentally strong. Every other trading currency, except perhaps the Euro, is trying to cheapen itself. It would be good to cushion exporters but there is not much you can do against a flood of currency heading our way.

    I would consider direct subsidies to exporters using tax revenue gained from hot currency entering the country. The “hot currency” is hypothetical but in theory it must exist given the robustness of the kiwi. If it was possible to identify where it was from and where it was settling I would look at taxing it directly. International distortions are hammering our trade sector in entirely unfair ways and it the the job of the Reserve Bank to understand how to lessen the pain. I don’t think selling short the kiwi by 250m will even start to do the job.


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