The Reserve Bank was not expected to go toe-to-toe with the market to keep the New Zealand dollar down but it was expected to make smart decisions to rebuff any rallies, BNZ currency strategist Raiko Shareef said yesterday.
The Reserve Bank revealed on Monday it had sold a net $521 million of the kiwi in August, the news of which saw the dollar lose US1.5c and fall to US77.54.
Mr Shareef said the volumes involved were paltry. On average, the New Zealand dollar was traded to an average daily total of $53 billion.
On that scale, the Reserve Bank's net selling in August amounted to less than 0.05% of New Zealand dollar transactions in August.
Governor Graeme Wheeler and his advisers were well aware of those constraints. Their actions in the past few months were proof of that, he said.
The introduction of intervention buzzwords in July, the refusal to address rumours of action in August, the surprise attack last week, and the hotly anticipated reveal on Monday all spoke of a tightly-managed operation.
''That last week's statement was released as the New Zealand-US dollar cross was teetering on key support levels harks of tactical nous.''
The Reserve Bank had removed any remaining speculative element in the currency market looking for a sustained return above US80c, Mr Shareef said.
Forsyth Barr broker Peter Young said the sell-off in the dollar had not been unexpected but the pace of weakness caught markets off guard.
''Currencies always overshoot on the upside and undershoot on the downside. But the Reserve Bank is clearly comfortable the local economy can manage a materially lower currency without triggering higher inflation.
''I'm guessing here, but suspect the Reserve Bank would be comfortable to see the dollar settle in the low US70c range.''
A fall to the US60c range should not be discounted if the US economy continued to strengthen and interest rates there did not start to rise sometime next year, he said.
