While Australia’s Reserve Bank has taken a back seat, and let the Australian dollar run, the Reserve Bank of Australia (RBNZ) has today warned markets that it could intervene and sell NZ dollars if the currency remains high.
Speaking at the DairyNZ conference in Hamilton this morning, RBNZ governor, Graeme Wheeler, made the following threat [my emphasis]:
Commenting on New Zealand’s high exchange rate Mr Wheeler said the strength of the terms of trade, which are at a forty year high, are an important driver. New Zealand’s long-term reliance on foreign savings to finance its investment needs also places upward pressure on interest rates and the exchange rate. In addition, the high exchange rate also reflects the relative strength of New Zealand’s economy compared to other advanced economies.
“The Reserve Bank considers that the exchange rate is overvalued and does not believe its current level is sustainable. Our exchange rate could be expected to weaken if one or more of the following occurs: the US economy continues to improve; global dairy prices continue to come off their recent highs; China’s growth slows; financial market volatility begins to rise; or there is a global ‘risk off’ event such as a correction in global equity prices.”
“If the exchange rate remains strong, it is likely to be reflected in continued low or negative tradables inflation. In such circumstances, the high exchange rate, along with new economic data, will be a factor in our assessment of the extent and speed with which the Official Cash Rate needs to be raised.”
“Further, if the currency remains high in the face of worsening fundamentals, such as a continued weakening in export prices, it would become more opportune for the Reserve Bank to intervene in the currency market to sell New Zealand dollars.”
Now that is jawboning!
Before Wheeler made his speech this morning, the NZ dollar had soured to US$87.62, but dropped nearly one cent following his speech, according to Interest.co.nz.
