New Zealand’s Dollar Overvalued Says English; Currency Falls

The New Zealand dollar is over valued and there is little the government can do to lower it, Finance Minister Bill English said. The currency fell.

The so-called kiwi, which has climbed 12 percent over the past two years, is “driven to a large extent by quantitative easing,” English said in an interview in Hong Kong. “We don’t really have a way of influencing the valuation.”

English’s comments echoed the International Monetary Fund, which estimate the kiwi is about 15 percent overvalued. New Zealand’s dollar is likely to remain elevated as long as loose monetary conditions exist around the world, the IMF said in an annual review of the nation’s economy.

The New Zealand dollar fell to as low as 82.42 U.S. cents, from 82.65 cents before English’s comments, before trading at 82.49 cents as of 4:36 p.m. in Wellington.

“We will expect there may be a correction in valuation with the exchange rate when the U.S. economy is clearly picking up, and there are signs of that now,” English said.

English’s comments “at the edge add to some of the bearish tone we’ve seen around the New Zealand dollar,” said Jonathan Cavenagh, a currency strategist in Singapore at Westpac Banking Corp. (WBC) “I still think the currency is going to be pretty well supported on dips.”

Photographer: Jerome Favre/Bloomberg

Bill English, New Zealand's finance minister. Close

Bill English, New Zealand's finance minister.

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Photographer: Jerome Favre/Bloomberg

Bill English, New Zealand's finance minister.

The kiwi’s advance against the greenback since March 2011 has been the strongest among major currencies, data compiled by Bloomberg show.

Intervention Futile

Targeting a lower New Zealand dollar through intervention would be expensive and largely futile as the currency is one of the most widely traded relative to the nation’s size, Brian Aitken, IMF Mission Chief to New Zealand, told reporters in Wellington yesterday. It could also cause long-term damage to what the IMF regards as a solid monetary policy framework, he said.

“The ability to pick the price through intervention is probably very limited without causing all other kinds of distortions,” he said. “Ultimately, taxpayers of New Zealand would be paying a very high price.”

Reserve Bank of New Zealand Governor Graeme Wheeler said last month he’s ready to intervene in foreign-exchange markets, adding to comments by officials from South Korea to Japan and Norway warning their currencies are too strong. Still, “given the strength of recent capital flows, we can only attempt to smooth the peaks” of the kiwi, Wheeler said Feb. 20.

The central bank left its benchmark interest rate unchanged at 2.5 percent last week. Wheeler said March 14 that he expects to keep borrowing costs at a record low until next year and signaled he may reduce its benchmark rate if the local dollar rises more than the economy justifies. The Governor’s comments on currency have been more explicit than predecessor Alan Bollard, whom he succeeded in late September.

Photographer: Jerome Favre/Bloomberg

Bill English, New Zealand's finance minister. Close

Bill English, New Zealand's finance minister.

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Photographer: Jerome Favre/Bloomberg

Bill English, New Zealand's finance minister.

“It’s more likely for rates to stay lower,” said English, adding that the government was still aiming to return to a budget surplus by 2015.

To contact the reporters on this story: Fion Li in Hong Kong at fli59@bloomberg.net; Chris Bourke in Wellington at cbourke4@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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