By SIMON LOUISSON
The New Zealand dollar took a dive in late trading today after comments by Finance Minister Michael Cullen on Reserve Bank intervention spooked the currency market.
The kiwi had been trading up at US70.35c, not far from seven year highs, but it slid back to US69.83c at 5pm after Dr Cullen gave his strongest hint yet that he favoured the central bank intervening to curb the rampant currency.
Dr Cullen told Dow Jones Newswires the Reserve Bank was concerned about the relatively low level of its foreign exchange reserves by international standards.
Treasury and the bank will report in three or four weeks.
He also hinted at direct intervention in the market, saying that if the policy of non intervention changed, then the Reserve Bank's approach would be similar to that of its Australian counterpart.
"The RBA has two different approaches, one is what it calls replenishing its reserves, and the second is where they intervene. I think it would be sensible that the Reserve Bank of New Zealand would operate in a similar fashion," Dr Cullen said.
It seems, however, more a question of when, rather than if, the central bank shifts its approach.
When asked whether intervention is likely in the coming months or this year, the minister said: "I wouldn't rest easy on the assumption that the settings for the last 20 years are going to remain unchanged, I would be inclined to factor that into one's judgment."
The finance minister said the central bank independently had been "concerned about the level of reserves being adequate to deal with market disruption".
Despite the possible shift in policy, Dr Cullen emphasised that intervention wasn't a cure-all and would only have a short-term effect.
Market players and commentators agreed despite the selling out of Asia in response to Dr Cullen's comments.
BNZ currency strategist Sue Trinh said the local market was sceptical.
"It's just another way of talking down the currency in the short-term.
"It's obvious that we have reached Michael Cullen's pain threshhold as far as the kiwi's appreciation, the question is whether we have reached the RBNZ's pain threshhold and we haven't seen any evidence of that."
She said that Governor Alan Bollard had acknowledged the difficulty in materially affecting the currency through intervention.
"There is a difference between what Cullen thinks and what the RBNZ thinks," Ms Trinh said.
"The local market is rather sceptical of the prospects of the RBNZ intervening."
She said the kiwi would still be dominated by global trends which basically meant what happened to the US dollar. Inflation data in the US over the weekend would dictate the near term trend.
- NZPA
<I>NZ currency:</I> Kiwi dips after Cullen intervention comments spook
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