NZD Falls After Central Bank Discloses Sale

09/30/2014 9:00 am EST

Focus: CURRENCIES

Alfonso Esparaza

Senior Currency Strategist, OANDA

As OANDA senior currency strategist Alfonso Esparza points out, the Central Bank announced it conducted its biggest sell-off of the New Zealand dollar in seven years on Monday in an effort to lower the damaging exchange rate for exporters.

The New Zealand dollar (NZD) sank Monday after the central bank disclosed it conducted its biggest sell-off of the currency in seven years to lower an exchange rate that is squeezing exporters.

Data released by the Reserve Bank showed it sold 521 million New Zealand dollars ($410 million) during August. That came after the central bank governor, Graeme Wheeler, said the currency was too strong.

The disclosure pushed the currency known as the Kiwi down nearly 2% against the US dollar to its lowest level in over a year before it recovered slightly to trade at $0.78. The currency has dropped 12% since July, when the central bank announced it was suspending its program of interest rate hikes.

Many would like to see it fall further, including Prime Minister John Key, a former currency trader.

On Monday, Key told reporters a New Zealand dollar worth $0.65 would represent a “Goldilocks rate: Not too high, not too low, just about right.”

However, he added, “Just because I might think that’s about the rate that works for exporters doesn’t mean that’s the rate it’s going to get to.”

The central bank had earlier been the first among developed nations this year to begin hiking interest rates. It raised the benchmark rate four times to 3.5% as it tried to cool the economy, which had been growing at a relatively fast clip of 4%.

By Alfonso Esparza,Senior Currency Strategist, OANDA

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