RBNZ currency warning weakens dollar

19:45, Feb 20 2013

The New Zealand dollar continued to fall against the greenback overnight after the Reserve Bank governor's jawboning reminded markets of the potential for intervening in the high exchange rate.

The kiwi dollar recently traded at US83.59 cents, down from US84.06c at 5pm yesterday, while on the Trade Weighted Index of major trading partners' currencies it was unchanged at 76.80.

Speaking to the Manufacturers and Exporters Association yesterday, central bank governor Graeme Wheeler said the dollar was well over-valued.

He said the bank "stands ready to intervene in the currency when circumstances are right" and to use the Official Cash Rate as required. The OCR, at 2.5 per cent, is at its historic low.

But he also stressed that there were no quick fixes, and quantitative easing would increase inflation and lead to higher interest rates.

The dollar has lost more than a cent since the speech but is still some way off falling to key levels of support.

HiFX senior currency strategist Dan Bell said though the references to intervention weren't explicit, "it was enough to give the market plenty of excuses to sell the kiwi".

"Also overnight we've seen a bit of general risk aversion, so equities, commodities and most risk assets have sold off, and we've seen the kiwi come with that as well," he said.

Bell said hawkish sentiment from some participants in the minutes of the latest US Federal Reserve meeting, released this morning, had also given the greenback a bit of a boost.

On the crosses, the kiwi recently traded at 81.36 Australian cents, up from A81.15c at 5pm yesterday, 62.64 euro cents, down slightly from E62.67c, 54.68 pence, up from 54.42p, and 78.37 yen, down from 78.54 yen.