BLBG:Kiwi Dollar Drops as Wheeler Says Prepared to Intervene
New Zealand’s central bank governor said he’s ready to intervene in foreign-exchange markets, the latest in a string of countries from South Korea to Brazil warning their currencies are too strong even as Group of 20 nations pledge 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 G-20 finance ministers said they wouldn’t target exchange rates, Japan’s leaders have pledged steps to boost the economy that have caused the yen to tumble. Policy makers in South Korea, the Philippines are weighing curbs to capital inflows while Norway’s central bank said it is ready to cut interest rates to counter the krone’s strength.
Wheeler said in a speech to manufacturers and exporters today in Auckland that he’s “prepared to intervene to influence the kiwi.” The New Zealand dollar slid as much as 1 percent before trading 0.9 percent lower at 83.88 U.S. cents at 9:41 a.m. in London. The country isn’t a member of the G-20.
“There seems to be a sense that the gloves are off in terms of central-bank action in currency markets,” said Mitul Kotecha, global head of foreign-exchange strategy at Credit Agricole SA in Hong Kong. “Wheeler’s comments are a clear reflection of the G-20 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.”
Kiwi’s Gain
The kiwi has surged more than 40 percent against the dollar since the end of 2008, the biggest advance after its Australian counterpart among over 150 currencies tracked by Bloomberg. It strengthened to 88.43 U.S. cents on Aug. 1, 2011, the highest level since it was freely-floated in 1985.
Finance ministers and central bankers from G-20 nations pledged in a Feb. 16 statement 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 Nov. 15, the yen has slid 13 percent against the dollar, the biggest decline among major currencies. Elections the following month elevated him to prime minister.
Inflation Target
The Bank of Japan last month adopted a 2 percent inflation target without a deadline and said it would start open-ended asset purchases next year. BOJ board member Yoshihisa Morimoto said today the central bank will implement unprecedented monetary stimulus this year.
Other policy makers in Asia have also vowed to curb currency swings in the past month as inflows from developed markets fueled the risk of asset bubbles and decreased export competitiveness.
Speculative trading in the currency market “should be curbed in any means,” Bank of Korea Governor Kim Choong Soo said at a meeting with economists in Seoul today. President Elect Park Geun Hye said South Korea will act “pre-emptively and effectively” on currencies to protect its companies, according to an e-mailed statement today from her spokesman.
Philippine central bank Governor Amando Tetangco said in a Feb. 15 speech his country will consider more “macroprudential measures, as appropriate” to ensure the exchange rate remains aligned with fundamentals.
‘Irregular Factors’
Taiwan’s central bank said it will intervene in the currency market if “irregular factors,” such as large fund flows, cause excessive volatility, according to a statement on its website on Jan. 29. The central bank has sold the local currency near the close on most days in the past 10 months, according to traders who asked not to be identified.
Bank Indonesia has repeatedly pledged its readiness to intervene in the currency market to keep the rupiah from weakening too rapidly. Foreign-currency reserves dropped to $108.8 billion in January, least since July, from $112.8 billion in December, suggesting the central bank intervened.
“Bank Indonesia continues to guard the rupiah’s exchange- rate stability according to economic fundamentals,” it said in a statement on Feb. 2.
The central bank of Norway said it is ready to lower interest rates to counter the krone’s strength if it interferes with the inflation target. Norway’s currency rose 7 percent in the past six months against the dollar, the third best performer of 16 major currencies.
‘Too Strong’
“If it gets too strong over time, leading to inflation that’s too low, we will act,” Norges Bank Governor Oeystein Olsen said in Oslo on Feb. 14 “I have followed the krone development, and we always do.”
While the Swiss franc weakened against the euro this year as the region’s debt crisis eased, the central bank said the currency remains at risk of strengthening as European leaders struggle to restore confidence.
“We’re welcoming the slight depreciation of the franc against the euro since the beginning of this year,” SNB President Thomas Jordan said in Zurich yesterday. “As long as the fiscal and structural problems of the euro region are unresolved, the threat of sudden, returning upward pressure on the franc isn’t over.”
In South America, Brazil’s central bank sold reverse currency swap contracts on Feb. 15 for the second time this month to contain the real’s 4.9 percent gain this year, the most among 25 emerging-market currencies tracked by Bloomberg.
Last Intervention
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 shows it sold NZ$263 million of the currency in November and December last year.
The Reserve Bank of Australia’s sales of its own currency outside foreign-exchange markets rose to a three-year high in October. The central bank sold A$1.4 billion ($1.45 billion) more than it bought during three months to a category of buyers that can include foreign central banks, the largest amount since the period ended July 2009, official data show.
RBA Deputy Governor Philip Lowe said Dec. 5 the central would not rule out intervention to deal with an ‘uncomfortably high” Australian dollar. “It would be a very big step to take,” he said.
To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
