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RBNZ confirms willingness to intervene - Westpac

FXStreet (Guatemala) - Imre Speizer, FX strategist at Westpac Banking Corporation ABN noted that the RBNZ sold NZ$521m in the foreign exchange market in August, according to its just released monthly report on its fx transactions.

Key Quotes:

“Although that is close to the "market whisper", NZD/USD was still sold in response, from 0.7828 to 0.7749. Either the whisper was not widespread, or today's confirmation has caused the market to raise its probability of further intervention. Or both”.

“The market had earlier speculated the RBNZ sold the NZD on Monday 25 August, early in the NZ session, on a day when liquidity was likely to be thin due to a London holiday. That was because NZD/USD inexplicably fell from 0.8397 to 0.8336 within a few minutes”.

“Market suspicions had some foundation, the RBNZ explicitly warning of intervention earlier this year. At its OCR Review on 7 July, the RBNZ said: “With the exchange rate yet to adjust to weakening commodity prices, the level of the New Zealand dollar is unjustified and unsustainable and there is potential for a significant fall.”

“Note that this warning was later repeated at its Monetary Policy Statement on 11 September: “The exchange rate has yet to adjust materially to the lower commodity prices. Its current level remains unjustified and unsustainable. We expect a further significant depreciation, which should be reinforced as monetary policy in the US begins to normalise.””

“The rhetoric was intensified in a detailed speech on 25 September entitled: “New Zealand’s Exchange Rate : Why the Reserve Bank believes its level is unjustified and unsustainable“. That speech caused NZD/USD to fall around 1.3 cents, raising market fears of further intervention".

“Today’s report should at least confirm the RBNZ is willing to intervene at opportune times as long as it considers the exchange rate to be too high. August's intervention was the largest since the 'overt' intervention in 2007. The threat of more to come will remain a negative for the NZD for some time”.

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RBNZ willing to intervene at opportune times - Westpac

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