KEY POINTS:
The Reserve Bank copped some flak after it intervened to bring down the value of the New Zealand dollar early last week, but its surprise action seems to have worked - for the time being at least.
The New Zealand dollar was trading at $0.7520 on Friday, well down from its high of $0.7640 on June 8.
The bank opted to sell Kiwi dollars on the following Monday in its first intervention since the currency floated in March 2005.
When it entered the fray, the foreign exchange market was thinner than usual because Australian markets were closed for the Queen's Birthday holiday, which helped accentuate the Kiwi's fall.
International investors are drawn to the Kiwi because of the high interest rates it can fetch, and the Reserve Bank has come in for criticism for selling the currency days after raising its official cash rate to 8 per cent.
Foreign exchange dealers and strategists agree that the intervention has been effective, but the question remains as to how long it will last given the Kiwi's attractiveness as a high yielding currency.
"They have certainly knocked the top off it for now," said Mark Elliott, a senior dealer and technical analyst at ANZ-National Bank.
At the time of Monday's intervention, the Kiwi was gaining in its own right, independent from other currency movements, on the back of Japanese investment buying.
Anyone thinking the NZ dollar, which offers the highest interest rates in the western world, is a one-way bet has stopped in their tracks.
Bank of New Zealand currency strategist Danica Hampton said the central bank chose a good time to sell, as the currency had enjoyed a strong run over the week and was looking overdue for a correction.
"It has given people more to think about before they start buying Kiwi, so I think in that sense it has been successful," said Hampton.
Westpac currency strategist Michael Gordon said that the effectiveness of the Reserve Bank's action needed to be measured over time.
The Reserve Bank did not reveal how many Kiwi dollars it sold but it was rumoured to be anything up to $500 million. "If that was the case, then knocking a cent or so off the currency was about as much as they would have expected," said Gordon.
But he added that overseas evidence suggested the impact of intervention was generally short-lived.
"Their goal is to trim the tops and bottoms off the exchange rate cycle, so it's a matter of asking what would have happened had they not intervened," he said. "Unfortunately, if it was successful then we will never be able to prove it, whereas if it is a failure it will be quite obvious."
