Currencies | Feb 20 2013
By Andrew Nelson
There’s been increasing talk the Reserve Bank of New Zealand (RBNZ) may line up the troops and ship them off to the Currency War. Foreign exchange analysts from the Commonwealth Bank note most of the speculation about the RBNZ intervening to weaken the New Zealand dollar comes from three issues which have been playing out of late.
First, CBA notes the rise in the NZD trade-weighted index, which hit a new record high last Friday. Next is comments from the RBNZ’s January policy meeting, with the central bank itself claiming the NZD is overvalued.
The last reason probably gives the biggest hint. CBA notes the latest release of RBNZ balance sheet data shows the central bank was a net seller of NZD in December 2012. While still a relatively modest NZ$199bn, the amount of selling is nonetheless increasing.
Yet while the signs are there, CBA doesn’t think the RBNZ will overtly intervene to try and weaken the NZD. What that means is that the analysts don’t see the RBNZ doing anything in the public eye with the sole objective of influencing market conditions. It’s something that hasn’t been done since the GFC and CBA notes this is because of some stringent guidelines, which in the current circumstances have not been met.
That doesn’t mean the RBNZ won’t be out there trying to talk the Kiwi down and fiddling around with forex reserve management. But were the RBNZ to actually go the whole hog and overtly intervene in the forex market, CBA thinks the impact on the NZD would not last long anyway. And again, were such a move made, CommBank thinks it would only be as an “attempt to fire a warning shot” across the bow of the forex market.
This happened back in June 2007 following the RBNZ’s move to intervene in the forex market to sell the NZD. Back then, the NZD returned to levels prior to intervention within 10 trading days.
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