The Reserve Bank of New Zealand sold a net 521 million New Zealand dollars (US$406.4 million) in August--the most since July 2007 and significantly more than the NZ$2 million it sold in July this year, data released by the central bank showed.
The currency fell sharply after the data's release, touching US$0.7708--its weakest since late June 2013--from around US$0.7828 just prior to the release.
The central bank "put its money where its mouth is" by selling the currency, ASB Chief Economist Nick Tuffley said. "We don't rule out further tactical actions from the RBNZ to keep downward pressure on the New Zealand dollar."
The RBNZ has said on several occasions that the New Zealand dollar, known as the kiwi, was unjustifiably strong even given the country's relatively strong economy. Market participants have interpreted the statements as indications that the central bank was prepared to intervene to weaken the kiwi.
Prime Minister John Key, a former currency trader, earlier said he supported the central bank intervening in the market, suggesting the New Zealand dollar should be around US$0.6500.
The kiwi's strength is largely the result of a relatively strong economy that has outperformed those of most other developed nations since the global financial crisis. The South Pacific nation, with a population of just 4.5 million, has benefited from booming Asian demand for its meat and dairy exports, and the pace of its economic growth is now at a 10-year high.
New Zealand is also among the few countries to have begun a cycle of interest-rate increases--four so far this year--helping fuel demand for the Kiwi.
Still, cracks are starting to show in the economy. Among the biggest concerns is a sharp decline in prices of dairy, the country's largest export sector.
Theo Spierings, chief executive at dairy giant Fonterra Co-Operative Group, said any fall in the New Zealand currency was going to help exporters.
Source: marketwatch.com
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