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The kiwi settled above US75c in relatively quiet trading today following yesterday's tumultuous session when the Reserve Bank intervened in the market for first time since the kiwi was floated in 1985.
"It's taking a breather," said ANZ chief dealer Murray Hindley. "This is new territory for everyone really."
The kiwi closed on US75.30c, up from its US75.20c opening, but down from its US75.35c close yesterday.
Analysts had mixed views on the effectiveness of the bank's intervention. Some said the fall from the post float high of US76.4 touched over the weekend, was relatively modest.
However, Mr Hindley said the market would now have a wary eye on the bank if the kiwi moved higher.
"The market would be looking over its shoulder. I'm not so sure whether we will see another round of intervention or not," he said.
"I don't know what level they are targeting."
Kathy Lien, chief strategist with DailyFX.com, said if the Reserve Bank had not injected some uncertainty into the currecy market, "it would have most certainly hit US80c by the end of the year".
She said the timing of the intervention was perfect, with Australian traders closed for the Queen's Birthday holiday. The bank got most bang for its buck.
Nevertheless, she said the RB was likely to "sterilise" its intervention -- offset the sale of the NZ dollars it sold by issuing bonds -- and so neutralise the effect.
"By doing so, the intervention is less effective than unsterilized intervention and choosing this options suggest that the central bank is simply trying to send a message to the market rather than reverse the impact of its interest rate hike.
"Unless they intervene again, the effectiveness of this intervention will probably be limited."
She also noted the RB's intervention war chest was relatively small -- around $7 billion. Westpac bank estimated it spend $120m intervening.
The kiwi was around US76.25c when rumours of the intervention started circulating about 2.30pm yesterday. It slumped to US74.67c in quick time.
Bank of New Zealand currency strategist Danica Hampton said a range of global investment banks, macro and model accounts were noted sellers of the NZ dollar against the US and Australian dollars overnight.
It was conceivable the NZ dollar could move back up towards US76c in coming months, but such a move would need to be supported by a sharply weaker US dollar or it would risk further Reserve Bank action, she said.
Yesterday's decline was the NZ dollar's largest in more than a year, but there was only limited impact on carry trades -- risky trades in which investors buy high-yielding currencies like the NZ dollar funded by borrowing low-cost currencies such as the yen and Swiss franc.
Dealers said robust risk appetite, supported by gains in global equity markets, could mean buyers dip their toe back into the kiwi market later this week, barring any further action from the central bank.
Stephen Koukoulas, a strategist at TD Securities, said the shock effect of the Reserve Bank's intervention could wear off fast, tempting hedge funds and carry traders to renew their recent buying onslaught.
"It's like a red rag to a kiwi bull. When the dust settles from this kerfuffle, interest rates are still going to be high and growth solid."
New Zealand is just a small part of the yen carry trade, a trillion dollar worldwide flow of Japanese savings and cheap credit into the global system - a trade big enough to lower global bond yields and juice house prices not just in New Zealand, but in Britain, Europe, and America.
Dealers said there was no sign yet the carry trade had significantly cooled.
The Reserve Bank's action was seen as an isolated move with little overall market impact, as it ran counter to the trend of global monetary tightening in line with a solid global economy.
"It was contradictory to sell the New Zealand dollar while tightening credit the previous week," said Masashi Kurabe, a senior manager of forex trading at Bank of Tokyo-Mitsubishi UFJ.Kurabe. "But I see the intervention as part of its smoothing operation. The RBNZ has no intention of pushing the kiwi further down but may raise rates again due to inflation concerns."
- NZPA
