Kiwi Slides After RBNZ Holds Rates Steady, Warns of Intervention

The New Zealand dollar fell against all 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 kiwi slid from the highest this month against the Aussie dollar after Reserve Bank of New Zealand Governor Graeme Wheeler reiterated his willingness to intervene to curb the “overvalued” currency. A report today will probably show Australia’s jobless rate rose to match the highest since September 2009.

The RBNZ was “a little more dovish than what the market expected,” said David Croy, a Wellington-based researcher at ANZ National Bank Ltd. “The bank left its interest rate projections for the period through to the first quarter of 2015 unchanged, which probably caught some people by surprise.”

The New Zealand dollar dropped 0.3 percent to NZ$1.1912 versus the Aussie as of 11:03 a.m. in Sydney from yesterday, when it touched NZ$1.1862, the highest since May 30. The kiwi slumped 0.4 percent to 79.59 U.S. cents. Australia’s dollar was little changed at 94.82 U.S. cents.

The RBNZ today maintained its forecast that the three-month bank bill yield will rise to 2.8 percent in the second quarter next year from an estimated 2.7 percent in the current quarter. The outlook, which is seen as a guide to the direction of the Official Cash Rate, suggests no increase in the benchmark until mid-2014.

Intervention Warning

“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,” Wheeler said at a briefing after the announcement.

The currency has declined about 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.

The Australian Bureau of Statistics will probably say the unemployment rate rose to 5.6 percent in May from 5.5 percent the month before, according to the median estimate of economists surveyed by Bloomberg News. That would match the highest since September 2009, when the rate was 5.7 percent.

The Australian dollar has rebounded 1.8 percent against the greenback after touching the lowest since September 2010 on June 11. It has fallen 9 percent this quarter.

“In the last few days, the Aussie seems to have found a temporary base,” said Andrew Salter, a currency strategist at ANZ in Sydney. “What that means in terms of trading the currency over this release is that it’s going to be more difficult to see continued downside momentum than it will be to see an extension to the upside.”

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