WELLINGTON: The Reserve Bank of New Zealand intervened in currency markets last month by selling a net NZ$521 million ($406.1 million), stoking speculation that the central bank may act again to capitalise on the currency's slide.
The New Zealand dollar slumped to a one-year low after central bank figures released on Monday confirmed the RBNZ had intervened in the $4 trillion a day currency market in August, its first major foray since April 2013.
The move underlined the RBNZ's discomfort with the currency's strength and comes days after governor Graeme Wheeler renewed his warning that the 'kiwi' dollar was at unjustified and unsustainable levels.
The RBNZ has been ratcheting up its anti-kiwi rhetoric since July, and an analyst said the central bank is acting at an opportune time when broad U.S. dollar strength had started to weigh on the local currency.
"The impact of its actions on markets has been more about sending a signal to markets that the RBNZ does see the recent strength of the NZD as unsustainable, helping to put downward pressure on the NZD at a time when the NZD was starting to retreat," said ASB Bank chief economist Nick Tuffley.
The New Zealand dollar, the 10th most traded currency globally, tumbled to a low of $0.7748 from $0.7825.
The kiwi has fallen 12 percent since it touched a three-year high of $0.8839 in mid-July, hit by falling dairy prices, the RBNZ pausing its rate tightening, and market expectations the U.S. Federal Reserve is headed towards raising rates.
It was the biggest net sale of the New Zealand dollar since March 2011, when it sold NZ$525 million.
Before that it conducted full-blown selling in mid-2007 in an unsuccessful attempt to fight a rise in the currency, and the RBNZ has long acknowledged it has limited resources to counter movements in the New Zealand dollar, which sees around $100 billion in daily turnover.
That dwarfs the central bank's intervention war-chest of around $7.5 billion, according to RBNZ data.
Prime Minister elect John Key, a former foreign exchange dealer, said before the data was released that he backed the RBNZ's assessment of the currency and said it would have been "fairly logical" to intervene.
He said a reasonable "goldilocks" level for the currency was around $0.6500.
The RBNZ has not indicated its preferred level for the currency, but Wheeler has said the kiwi's recent drop doesn't fully reflect the steep fall in the price of dairy products - the nation's biggest foreign export earner.
Last week, he renewed warnings about the unsustainable and unjustified level of the kiwi dollar, and said it was susceptible to a significant fall.
The RBNZ has said intervention might be used when market conditions are opportune and it believed there was a good chance of influencing the exchange rate.
"We don't rule out further tactical actions from the RBNZ to keep downward pressure on the NZD," Tuffley said.
The central bank has always acknowledged that any intervention will work at the margins and look to smooth the currency's movements.
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