NZ dollar falls below 82 US cts after RBNZ's Wheeler says strength still 'unjustified'

File photo / NZ Herald

The New Zealand dollar dipped below 82 US cents for the first time in more than seven months after Reserve Bank governor Graeme Wheeler reiterated the local currency's strength remains "unjustified and unsustainable", invoking language signalling it could intervene to lower the kiwi.

The local currency fell as low as 81.78 US cents following Wheeler's comments, and was trading at 81.95 cents at 10am in Wellington from 82.20 cents immediately before the 9am release of the statement. The trade-weighted index was at 78.51 from 78.73 at 9am.

Wheeler kept New Zealand's benchmark interest rate on hold at 3.5 percent as expected in this morning's monetary policy statement and said the kiwi dollar's persistent strength is still "unjustified and unsustainable". The kiwi has already dropped by about 5 US cents since Wheeler's July review when he paused the tightening cycle as lower commodity prices weigh on the outlook for economic growth. The strong currency, while keeping a lid on imported inflation and strengthening the buying power of consumers, is seen as a headwind on the economy by eroding the value of the nation's exports.

"The key thing for me is that the New Zealand dollar, despite a 5 cent fall, is still 'unjustified' and we all know what that word means," said ANZ Bank New Zealand currency strategist Sam Tuck. "The statement suggests to me that the New Zealand dollar needs to continue to decline and the RBNZ is expecting it to continue to decline and if it doesn't there is a possibility that the RBNZ take direct action."

Traders had speculated the Reserve Bank may have intervened in the market, selling kiwi to bring the value of the currency down, after it shed half a US cent in about five minutes. Wheeler declined to comment at today's press conference on whether the bank had been actively intervening in the market, while saying the central bank expects the kiwi to keep falling, particularly when the US Federal Reserve starts raising interest rates from its near-zero policy.

"The New Zealand dollar is not at the levels which the RBNZ would like to see it at, they don't believe it's responded adequately to the commodity price falls and the change in the economic situation for New Zealand," the ANZ's Tuck said.

While the New Zealand dollar is expected to decline as the US dollar appreciates on an improving outlook for the world's largest economy, the RBNZ is suggesting the local currency should also continue to depreciate on its own merits, Tuck said.

"I would expect kiwi to continue its downward trajectory," Tuck said. ANZ expects the local currency to average 81 US cents over the December quarter.

Meanwhile, in Australia today the focus will be on the release of employment data for August.

The local currency declined to 89.44 Australian cents at 10am from 89.75 cents at 9am, to 63.44 euro cents from 63.63 cents and to 87.56 yen from 87.82 yen.

The kiwi was trading at 50.57 British pence at 10am from 50.70 pence at 9am, extending its decline against sterling after a new poll suggested Scotland wouldn't split from the UK.