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Kiwi Slides After RBNZ Holds Rates Steady, Warns of Intervention

The New Zealand dollar slumped against its 16 major peers after the nation’s central bank kept borrowing costs unchanged at a record low to avoid re-igniting demand for the currency.

The so-called kiwi slid from the highest level this month against the Australian dollar after Reserve Bank of New Zealand Governor Graeme Wheeler reiterated his willingness to intervene to curb the “overvalued” currency. The Aussie fluctuated against the greenback. Australian bonds rose and Asian stocks fell as investors shifted to refuge assets.

The RBNZ “was not quite as hawkish as the market had expected and that’s why the kiwi is selling off,” said Imre Speizer, a markets strategist at Westpac Banking Corp. in Auckland. “The market had already priced in a hawkish outcome over the last few days.”

New Zealand’s dollar sank 0.7 percent to 79.37 U.S. cents as of 5:31 p.m. in Sydney from yesterday. It fell 0.6 percent to NZ$1.1942 against the Australian dollar after yesterday touching NZ$1.1862, the highest since May 30. The Aussie was little changed at 94.78 U.S. cents, after earlier falling as much as 0.6 percent.

The MSCI Asia Pacific Index of stocks fell 2.5 percent, erasing this year’s gains. The yield on Australia’s 10-year government bond declined seven basis points, or 0.07 percentage point, to 3.39 percent.

“Despite having fallen over the past few weeks, the New Zealand dollar remains overvalued,” Wheeler said in a statement in Wellington today after leaving the cash rate at 2.5 percent.

“If we see the opportunity to try, for example, to take the tops off any exchange rate peak then we may exercise intervention,” he said at a briefing after the announcement.

Intervention Warning

The currency has declined more than 5 percent against the greenback since Wheeler first said on May 8 he was intervening to weaken it. He sold a net NZ$256 million ($204 million) in April, according to central bank data. In a May 30 speech, Wheeler said he was prepared to step up his efforts.

Traders are pricing in 36 basis points of interest rate increases by the RBNZ within 12 months, according to a Credit Suisse AG index based on swap contracts. They see 33 basis points of rate cuts by the Reserve Bank of Australia, where the benchmark is at a record low 2.75 percent.

The Aussie rose briefly after data showed that Australian employers unexpectedly boosted payrolls in May, before sliding as much as 0.6 percent against the greenback.

The number of people employed rose by 1,100, the statistics bureau said in Sydney, after rising by a revised 45,000 in April. Last month’s increase compares with the median estimate of a 10,000 drop in a Bloomberg News survey of economists. The jobless rate fell to 5.5 percent from a revised 5.6 percent.

“Volatility remains in place, and I don’t see any change in that,” said Mitul Kotecha, the global head of foreign-exchange strategy in Hong Kong at Credit Agricole SA. “Aussie demonstrates that particularly well.”

One-month implied volatility for the Aussie rose as high as 14.53 percent, based on currency options, the highest since June 5, 2012.

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