I was fortunate enough to attend the Institute of Directors breakfast where RBNZ Governor Graeme Wheeler was the guest speaker. He spent a lot of time focussing on the overvalued NZD and that keeping the OCR low is a an effort to weaken its value. He did mention that the RBNZ has intervened in the FX market by buying foreign currency with NZD – supply increases therefore value should drop. In assessing whether to intervene in the exchange market, the RBNZ apply four criteria.
1. Is the exchange rate at an exceptional level,
2. Whether its level is justifiable,
3. Is intervention consistent with monetary policy, and
4. Are market conditions conducive to intervention having an impact.
This last factor is especially important given the volume of trading in the Kiwi. In the most recent survey – April 2010 – by the Bank for International Settlements, the Kiwi was the tenth most traded currency in the world with daily turnover of spot and forward exchange transactions totaling around USD $27 billion.
“We can only hope to smooth the peaks off the exchange rate and diminish investor perceptions that the New Zealand dollar is a one-way bet, rather than attempt to influence the trend level of the Kiwi.” Graeme Wheeler – RBNZ Governor
See the graph below for the value of the NZD after his speech.