Don’t bet on kiwi strength, warns New Zealand

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Bloomberg

Graeme Wheeler, governor of the Reserve Bank of New Zealand, left, speaks while Grant Spencer, deputy governor of the Reserve Bank of New Zealand, listens during a news conference to release the November 2012 Financial Stability Report in Wellington, New Zealand, on Wednesday, Nov. 7, 2012. Photographer: Mark Coote/Bloomberg

Kristine Aquino and Candice Zachariahs Singapore and Sydney

New Zealand’s central bank governor was ready to intervene in foreign exchange markets, he said yesterday, the latest in a string of countries from South Korea to Brazil warning their currencies were too strong even as Group of 20 (G20) nations pledged to refrain from competitive devaluation.

The New Zealand dollar fell against its 16 major peers after Reserve Bank governor Graeme Wheeler said “the kiwi is not a one-way bet”.

While G20 finance ministers said they would not target exchange rates, Japan’s leaders have pledged steps to boost the economy that have caused the yen to tumble.

Policymakers in South Korea and the Philippines are weighing curbs to capital inflows while Norway’s central bank said it was ready to cut interest rates to counter the krone’s strength.

Wheeler said in a speech to manufacturers and exporters in Auckland yesterday that he was “prepared to intervene to influence the kiwi”.

The New Zealand dollar slid 0.9 percent to 83.88 US cents by 9.41am in London. The country is not a member of the G20.

“There seems to be a sense that the gloves are off in terms of central bank action in currency markets,” said Mitul Kotecha, the global head of foreign exchange strategy at Credit Agricole in Hong Kong.

“Wheeler’s comments are a clear reflection of the G20 stance, wherein the green light appears to be given to any central bank that wants to intervene in the currency as long as they don’t talk about particular levels.”

The kiwi has surged more than 40 percent against the dollar since the end of 2008, the biggest advance after its Australian counterpart among more than 150 currencies.

G20 finance ministers and central bankers pledged at the weekend not “to target our exchange rates for competitive purposes” while refraining from singling out Japan for weakening its currency as it seeks to end more than a decade of deflation.

Since Japan’s Shinzo Abe called for unlimited money printing by the central bank when he was opposition leader on November 15 last year, the yen has slid 13 percent against the dollar. Elections the following month elevated him to prime minister.

Other policymakers in Asia have also vowed to curb currency swings in the past month as inflows from developed markets fuelled the risk of asset bubbles and decreased export competitiveness.

New Zealand last confirmed intervening in foreign exchange markets in 2007 as the kiwi appreciated to the highest level since being allowed to trade freely. Central bank data show it sold NZ$263 million (R1.9 billion) of the currency last November and December.

The Reserve Bank of Australia’s sales of its own currency outside foreign exchange markets rose to a three-year high last October. The central bank sold A$1.4bn (R13bn) more than it bought over three months to a category of buyers that can include foreign central banks, the largest total since July 2009, official data show.

Deputy governor Philip Lowe said in December that the central bank would not rule out intervention to deal with an “uncomfortably high” Aussie dollar, but “it would be a very big step to take”. – Bloomberg


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