Talking Points:
- The New Zealand Dollar took a step back against its US cousin
- RBNZ Governor Wheeler said once again that a lower exchange rate would be helpful
- Markets are getting used to this sort of comment, however
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The New Zealand Dollar took a knock Wednesday after the Reserve Bank governor tried talking it down yet again.
The RBNZ’s aversion to further currency strength is pretty well established but, speaking in Auckland, Graeme Wheeler said that a lower New Zealand Dollar was needed to increase import inflation and help deliver more balanced growth.
However he also said that the country’s economic prospects were good, barring major unanticipated shocks (as post-crisis central bankers are now always obliged to add). He added that the greatest risk faced by New Zealand and the world relates to “inflated global asset prices” and “the continuing build-up of debt.”
Wheeler also commented on current restrictions placed on high loan-to-value (LVR) mortgage lending. He said they were temporary measures, but still necessary ones to prevent “housing market stability risks.”
The RBNZ has been worried for some time about the effects of investment buying of property in hotspots such as Auckland.
To sum up there wasn’t anything here markets hadn’t heard before, but the ongoing focus on the local Dollar’s strength served to remind investors that the central bank was still watching closely and NZD/USD duly slipped.
Wheeler was a little more measured on the subject than he has been in the recent past, however. In early August he reminded markets that active intervention in the currency remains an option for the RBNZ. In the genteel world of developed-market central banking even mentioning “the I word” counts as quite a threat, but he has not done so publicly since.
On its daily chart NZD/USD remain in a clear downtrend, largely thanks to that RBNZ jawboning. But,like its Australian counterpart (whose strength similarly exercises its central bank), it has not fallen far from its 2017 peaks and underlying appetite to buy the currency endures. New Zealand’s Official Cash Rate is at a record low of 1.75% – still higher than many rivals’ – and, with the bank not keen to add to the currencies allure, a raise may be some way off.
It remains to be seen whether the RBNZ will increase the vehemence of its currency rhetoric if buyers return and push the kiwi back towards those highs.
--- Written by David Cottle, DailyFX Research
Contact and follow David on Twitter: @DavidCottleFX
