KEY POINTS:
Alarm bells may be ringing at the Reserve Bank, as the dollar pushes past the 76 US cent mark.
The dollar soared to 76.24 US cents overnight before settling back to around 76.18 USc. Dealers say that could be enough to trigger further intervention by the bank, which would be its third this month.
At 8am today, the dollar was at US75.94c, virtually the same figure as yesterday's close of trading.
The New Zealand dollar hit a high of 76.40 on June 8, which prompted the Reserve Bank to stage its first intervention in an attempt to push down the currency's value. On Monday, the NZRB stepped in for a second time.
The US dollar and Japanese yen weakened against most currencies yesterday, particularly those with high yields, such as the New Zealand dollar and the Australian dollar. The aussie was also close to record highs, closing at US89.72c.
Closing at 73.87 on a trade-weighted index (TWI) basis, the kiwi is now close to the levels at which the Reserve Bank intervened last week.
That sell-off by the bank caused the kiwi to drop almost 2 per cent.
"The fact that the TWI is close to the 74 level has got market participants a little bit wary wondering whether or not they [the Bank] will be there," said BNZ currency strategist Danica Hampton.
"Nobody really knows if they'll intervene again and that has caused some uncertainty and encouraged profit taking." ANZ chief economist Cameron Bagrie said he would not be surprised to see the RBNZ intervene again if it saw opportunities to do so.
Bancorp Treasury services director Derek Rankin said the RBNZ's first intervention last week was "quite clever" in that it occurred when the Australian market was closed, and therefore trading volumes were lighter, and the market easier to influence.
The other timely factor last week was that the US dollar had strengthened and while the kiwi had not initially responded to that, the bank's intervention effectively pushed it in the direction it should have gone anyway.
If speculation the bank intervened again on Monday this week was correct, its timing was far less deft.
This was probably why the currency had responded less, Rankin said.
"There didn't seem to be the same degree of oomph behind it.
"When you signal to the market that there are levels with which you're not happy, that implies that you're going to defend that level and the market's got a far larger chequebook than you have."
Most of the discussion around the Reserve Bank's intervention has related to whether it was consistent with its mandate to maintain inflation within a 1 to 3 per cent band.
While the bank last month raised the official cash rate to 8 per cent, its intervention by selling New Zealand dollars is regarded as having an easing effect on monetary policy, which some say undermines the effect of its rate increases.
ANZ's Bagrie said he thought the bank's intervention was consistent with current monetary policy settings.
"Firstly they are not turning the currency around, they are just looking at ironing out the peak.
"Secondly, one of the issues the RBNZ is very wary of is a spike up in the New Zealand dollar and then a massive run down."
Should the kiwi turn aggressively, which it had shown a tendency to do in the past, "we're going to see the headline inflation rate rocket back up through 3 per cent".
- additional reporting by Newstalk ZB
