Kiwi a Buy as Intervention Talk Was Misread, Citi and Nomura Say

Investors should buy the New Zealand dollar after foreign-exchange markets misinterpreted a speech by central-bank Governor Graeme Wheeler as signaling intervention to weaken the currency, according to Citigroup Inc. and Nomura Holdings Inc.

While Wheeler outlined policy options to reverse the currency’s appreciation, including exchange-rate intervention, his prevailing point was that none are currently attractive, Todd Elmer, a Singapore-based Citigroup strategist, wrote in a client note. Markets misread the comments and sent the New Zealand dollar, nicknamed the kiwi, down versus its U.S. peer, creating a prime opportunity to buy the South Pacific currency, Elmer said.

“The market obviously jumped on the intervention word, but the rest of the speech is very cognizant of the limitations of what they can do in order to fight kiwi strength,” Steven Englander, head of G-10 currency strategy at Citigroup in New York, said in a telephone interview.

The New Zealand dollar slid as much as 1.3 percent to 83.55 U.S. cents in its biggest intraday drop since Dec. 21. The currency traded at 83.66 cents at 12:02 p.m. in New York, down 1.2 percent. The kiwi weakened 1.2 percent to 78.26 yen.

Wheeler’s remarks created better entry levels to bets that the kiwi will gain against the U.S. currency, Geoffrey Kendrick, a London-based strategist at Nomura, wrote in a note to clients.

“We would agree with the governor that intervention is unlikely to be successful, outside of an initial signaling impact,” Kendrick wrote.

Kiwi Surge

The kiwi has surged 45 percent against the greenback since the end of 2008, the biggest advance after its Australian counterpart. It climbed to 88.43 U.S. cents on Aug. 1, 2011, the strongest since it was freely floated in 1985.

Wheeler said in a speech to manufacturers and exporters today in Auckland that the Reserve Bank of New Zealand “can only attempt to smooth the peaks” of the exchange rate.

The central banker’s answer to kiwi strength was for New Zealand companies to improve productivity so the currency is able to catch up to the exchange rate, according to Elmer.

“The market is interpreting the RBNZ’s declaration of surrender in the currency wars as a rallying cry,” Elmer wrote in the client note. “This should provide an opportunity to buy the New Zealand dollar on the dip.”

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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