Currency Rhetoric Heats Up as Wheeler Warns on KiwiKristine Aquino and Candice Zachariahs
New Zealand’s central bank governor said he’s ready to intervene in foreign-exchange markets, adding to comments by officials from South Korea to South America warning their currencies are too strong, even as Group-of-20 nations say they’ll refrain from competitive devaluation.
The New Zealand dollar fell against its 16 major peers after Reserve Bank Governor Graeme Wheeler said “the kiwi is not a one-way bet.” After Japan’s leaders pledged steps to boost the economy that caused the yen to tumble, policy makers in South Korea and the Philippines are weighing curbs to capital inflows, while Norway’s central bank said it is ready to cut interest rates to counter the krone’s strength.
While European Central Bank President Mario Draghi said two days ago that finance chiefs should exercise prudence when talking about foreign-exchange movements, Wheeler said in a speech to manufacturers and exporters today in Auckland that he’s “prepared to intervene to influence the kiwi.” The New Zealand dollar slid 1.2 percent to 83.63 U.S. cents at 1:16 p.m. in New York. The country isn’t a member of the G-20.
“There seems to be a sense that the gloves are off in terms of central-bank action in currency markets,” said Mitul Kotecha, global head of foreign-exchange strategy at Credit Agricole SA in Hong Kong. “Wheeler’s comments are a clear reflection of the G-20 stance, wherein the green light appears to be given to any central bank that wants to intervene in the currency as long as they don’t talk about particular levels.”
The kiwi has surged almost 45 percent against the dollar since the end of 2008, the biggest advance after its Australian counterpart among over 150 currencies tracked by Bloomberg. It strengthened to 88.43 U.S. cents on Aug. 1, 2011, the highest level since it was freely-floated in 1985.
Finance ministers and central bankers from G-20 nations pledged in a Feb. 16 statement not “to target our exchange rates for competitive purposes,” while refraining from singling out Japan for weakening its currency.
Since Japan’s Shinzo Abe called for unlimited money printing by the central bank when he was opposition leader on Nov. 15, the yen has slid 13 percent against the dollar, the biggest decline among major currencies. Elections the following month elevated him to prime minister.
The Bank of Japan last month adopted a 2 percent inflation target without a deadline and said it would start open-ended asset purchases next year. BOJ board member Yoshihisa Morimoto said today the central bank will implement unprecedented monetary stimulus this year.
“Yen liquidity is forcing other central banks into easier monetary conditions,” said Hans Redeker, head of global foreign-exchange strategy at Morgan Stanley in London. “Wheeler definitely has to consider the implications of currency strength.”
Other policy makers in Asia have also vowed to curb currency swings in the past month as inflows from developed markets fueled the risk of asset bubbles and decreased export competitiveness.
Speculative trading in the currency market “should be curbed in any means,” Bank of Korea Governor Kim Choong Soo said at a meeting with economists in Seoul today. President Elect Park Geun Hye said South Korea will act “pre-emptively and effectively” on currencies to protect its companies, according to an e-mailed statement today from her spokesman.
Philippine central bank Governor Amando Tetangco said in a Feb. 15 speech his country will consider more “macroprudential measures, as appropriate” to ensure the exchange rate remains aligned with fundamentals.
Taiwan’s central bank said it will intervene in the market if “irregular factors,” such as large fund flows, cause excessive volatility, according to a statement on its website on Jan. 29. The central bank has sold the local currency on most days in the past 10 months, according to traders who asked not to be identified.
Bank Indonesia has repeatedly pledged its readiness to intervene to keep the rupiah from weakening too rapidly. Foreign-currency reserves dropped to $108.8 billion in January, least since July, from $112.8 billion in December, suggesting the central bank intervened.
“Bank Indonesia continues to guard the rupiah’s exchange-rate stability according to economic fundamentals,” it said in a statement on Feb. 2.
The central bank of Norway said it is ready to lower interest rates to counter the krone’s strength if it interferes with the inflation target. Norway’s currency rose 6.7 percent in the past six months against the dollar, the third-best performer of 16 major currencies.
“If it gets too strong over time, leading to inflation that’s too low, we will act,” Norges Bank Governor Oeystein Olsen said in Oslo on Feb. 14. “I have followed the krone development, and we always do.”
While the Swiss franc weakened against the euro this year after the region’s debt crisis eased, the central bank said the currency remains at risk of strengthening as European leaders struggle to restore confidence and it will continue to enforce a cap that it imposed on the exchange rate at 1.20 francs per euro.
“We’re welcoming the slight depreciation of the franc against the euro since the beginning of this year,” central bank President Thomas Jordan said in Zurich yesterday. “As long as the fiscal and structural problems of the euro region are unresolved, the threat of sudden, returning upward pressure on the franc isn’t over.”
Bank of Israel Governor Stanley Fischer this month praised the Swiss National Bank for currency-market intervention as pressure mounts in his country from manufacturers and exporters to intervene to stabilize the shekel-dollar exchange rate.
The Czech Central Bank reiterated its readiness to weaken the koruna to help stem the country’s recession, according to the minutes of its Feb. 6 meeting, published on Feb. 15.
Hungarian Economy Minister Gyourgy Matolcsy said last month he opposes a strong-forint policy to fight inflation, while Polish Economy Minister Janusz Piechocinski told the Rzeczpospolita newspaper in an interview published on Jan. 14 that a weaker zloty would be good for Polish exporters.
Bank Rossii may also continue to smooth exchange rate moves in the Russian ruble after transitioning to inflation targeting by the end of 2014, Central Bank Chairman Sergey Ignatiev told lawmakers in Moscow today.
In South America, Brazil’s central bank sold reverse currency swap contracts on Feb. 15 for the second time this month to contain the real’s appreciation. Peru’s sol touched the lowest level in two weeks yesterday after the government said it’s ready to boost dollar purchases to weaken Latin America’s best-performing currency of the past year.
The ECB’s Draghi said in Brussels two days ago that exchange rates should reflect “fundamentals.” The euro is, “by and large, around its long-term averages,” he said. The 17-nation currency has gained 8.2 percent against the dollar in the past six months. German Chancellor Angela Merkel said today the present value of the euro against the dollar is within the currency’s normal range.
The government in Denmark, which pegs its krone to the euro, says it’s suffering from the fallout of the single currency’s appreciation. “Denmark’s competitiveness has been weakened by the exchange-rate movements,” Finance Minister Bjarne Corydon said in an interview in Copenhagen today.
New Zealand last confirmed intervening in foreign-exchange markets in 2007 as the kiwi appreciated to the highest level since being allowed to trade freely. Central bank data shows it sold NZ$263 million in November and December last year.
The Reserve Bank of Australia’s sales of its own currency outside foreign-exchange markets rose to a three-year high in October. The central bank sold A$1.4 billion ($1.44 billion) more than it bought during three months to a category of buyers that can include foreign central banks, the largest amount since the period ended July 2009, official data show.
RBA Deputy Governor Philip Lowe said Dec. 5 the central would not rule out intervention to deal with an “uncomfortably high” Australian dollar. “It would be a very big step to take,” he said.