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Forex Flash: From RBA easing to RBNZ intervention - BTMU

FXstreet.com (Barcelona) - Derek Halpenny, European Head of Global Markets Research at the Bank of Tokyo Mitsubishi UFJ notes that financial market calm persists so far today with the dollar broadly flat against most major and Asian currencies.

He sees that the New Zealand dollar is the stand-out, down by 0.80% this morning following the admission by Governor Wheeler that the RBNZ has intervened in the foreign exchange market to limit the upside for NZD/USD. He writes, “We will only the know the specific details in regard to rough amounts after the central bank publishes monthly balance sheet statistics.” In its Financial Stability report, released today, Halpenny notes that the RBNZ stated that the relative strength of the New Zealand economy had pushed the currency higher which would be “problematic for some firms that compete in international markets”. Further, he notes that the strength versus the Australian dollar will be of most concern and the 5.5% gain since the middle of March to levels not seen since 2009 may have been a key factor that prompted action. Governor Wheeler has already stated that intervention was possible and would be conducted not to necessarily change the level but to place a top in rallies.

However, he adds that there is one obvious flaw in the actions of the RBNZ – the key interest rate at the relatively high level of 2.50% is not being lowered due to fears about a pick-up in the housing market. Additionally, restrictions on loan-to-value levels have been introduced to limit banking sector risks to any property price decline but unless the RBNZ is willing to tackle currency appreciation with monetary policy, the chances of success are slim. He writes, “When contrasted with the RBA, the BOJ, ECB and the Fed, intervention without monetary policy action will limit the downside for the New Zealand dollar. A strengthening US economy and renewed speculation of QE3 tapering, which should re-emerge in H2, will be much more influential in pushing NZD/USD lower than any mild intervention policy by the RBNZ.”

Looking further afield, he finishes by commenting that Asian currencies in general are also being supported by continued strong inflows to China, which keeps pushing USD/CNY lower. He sees that strong export figures from China today look set to keep the upward momentum for CNY going as the authorities try to tackle surging capital inflows. He writes, “This aspect of the market may well be a factor helping to support the euro as reserve accumulation is re-cycled by China into non-dollars.”

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