Rumours are circulating the Reserve Bank may be intervening
in the currency market. Photo by ODT.
The New Zealand dollar was the talk of the town in
foreign exchange circles this week with rumours the Reserve
Bank is intervening to weaken the kiwi sparking renewed selling
BNZ currency strategist Raiko Shareef said most commentary on
the alleged intervention suggested a figure in the region of
$200 million, which would rank among what had previously been
classified as ''passive intervention''.
Any active intervention, such as happened in 2007, would
appear at face value to be inconsistent with the Reserve
Bank's stated framework.
Specifically, the Reserve Bank had as recently as May last
year noted intervention would need to be consistent with
''To the extent one believes the Reserve Bank is in the midst
of a broader hiking cycle - as we do - this criteria does not
appear to have been met.''
The Reserve Bank might consider itself to have some wriggle
room on that point, having declared itself to be in a
short-term pause for reflection on interest rates, Mr Shareef
Still, without a press statement from the Reserve Bank, which
was presented within hours of the first salvo in 2007, he was
unsure whether the latest intervention was the start of an
extensive campaign like the $2.3 billion sold then.
''More plausible, in our minds, is the idea the Reserve Bank
is engaging in what we call passive intervention, where the
bank is expressing its long-held view of an overvalued dollar
by selling in relatively small volume.''
Since Governor Graeme Wheeler took the helm, the Reserve Bank
engaged in such activity in November and December in 2012 and
The rules on that type of action were not clear, Mr Shareef
Mr Wheeler sounded peeved at the strength of the dollar at
the July official cash rate review, invoking intervention
language by calling the currency's strength unjustified.
''Even if the bank turned out to have no hand in the price
action on Monday morning, we can't imagine Mr Wheeler being
The major question to answer was why now?
One answer was the Reserve Bank saw the opportunity to hasten
a movement towards more favourable monetary conditions.
The central bank had been worried a return to a more normal
level of interest rates had been hindered by a stubbornly
''With the tailwind of a broader US dollar rally, the Reserve
Bank might have simply decided to throw its weight behind New
Zealand dollar bears for relatively good risk-reward, as
they'd be able to take profit in the likely scenario the
dollar ends up weaker towards year end,'' he said.