The New Zealand dollar was sold sharply today after comments from Finance Minister Michael Cullen that it was undesirable for the kiwi to continue rising indefinitely.
"Obviously it's not desirable that the kiwi dollar continues to rise to levels that would adversely affect the tradeables sector," Dr Cullen told Reuters in an interview.
Dealers said the market was looking for an excuse to sell following the kiwi's big run in the last month, and Dr Cullen provided that.
The kiwi slumped from a US47.20c opening to US46.70c at the close. It had closed yesterday at US47.36 before climbing to a fresh 23-month high in New York of US47.64c.
The kiwi also took a hit against the aussie dollar, losing over three quarters of a cent to finish at A84.35c. It had been up at A85.10c when Dr Cullen made his comments.
The aussie also retraced sharply against the US dollar, ending at US55.28c from its US55.79c close here yesterday.
Dr Cullen said a higher New Zealand dollar cut returns to exporters, reducing net incomes especially among primary producers, which would affect New Zealand regional economies.
He declined to say what level the kiwi could reach before it harmed export prices, apart from saying that hadn't happened yet.
ANZ Investment Bank senior dealer Richard Marshall said the local market initially ignored Dr Cullen's comments as it usually does but two Sydney banks took the statement seriously and sold the kiwi aggressively. That triggered some of the hot cash as the speculators took profits.
Most believe the fall is temporary.
"We needed something to take the uptrend out temporarily, but I don't think the uptrend has been damaged. Really, kiwi could get back to US45.50c and it would still look quite strong," Mr Marshall said.
"Everyone was looking for an excuse to sell it and we were given it," he said.
Yesterday's budget had nothing to do with the selloff, he said.
Another dealer said there were a number of "weak longs" who wanted to ensure they locked in their profits before the weekend.
He agreed that the uptrend was in track.
"The trend is still intact as far as I'm concerned. The reason why we are up here is because of interest rates. Dr Cullen has made a simple comment that the currency will hit exporters at these heights and he believes its rise is unsustainable."
But the Wellington dealer noted the market had swung in the last few months to a focus on interest rate differentials.
"There has been a distinct turnaround and there is a focus on interest rates and, if that's going to last, then the move up is sustainable and we will see it higher."
The trade-weighted index -- which measures the kiwi against a basket of major currencies -- weakened sharply off its high to finish at 54.77 against yesterday's close of 55.32.
On the crosses, the kiwi closed weaker across the board. It was buying 58.40 yen (58.86), 32.11 pence (32.49), 0.5078 euro (0.5119), and 0.7390 swiss francs (0.7440).
The aussie was buying $NZ1.1845 ($NZ1.1780).
The monetary conditions index had tightened to minus 261 at the opening but weakened considerably to close at minus 322 compared with yesterday's close of minus 273.
The 90-day bank bills closed flat at 5.87 per cent. But bonds weakened slightly across curve in line with US Treasuries, which retreated after a strong finish for US stocks. The April 2004 bond yields closed at 6.12 per cent (6.09), the November 2006s at 6.67 per cent (6.64), and the November 2011s at 6.79 per cent (6.76 per cent).
- NZPA
<i>Currency:</i> Kiwi sold off sharply after Dr Cullen's comments
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