Kiwi Plunges as Much as 2% on RBNZ Intervention; Dollar Advances

By Lucy Meakin and Kristine Aquino

Photographer: Seong Joon Cho/Bloomberg

John Key, New Zealand's Prime Minister.

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New Zealand’s dollar was set for its biggest three-day drop since 2011 after the Reserve Bank said its currency sales in August were the most in seven years. The greenback extended its biggest monthly gain since 2012.
The kiwi slid against most of its 31 major peers as Prime Minister John Key was reported as signaling the currency needs to be weaker. The U.S. dollar remained higher as consumer spending in the U.S. rebounded in August. The euro erased earlier losses against the greenback as data showed German inflation beat economists’ estimates in September.
“The New Zealand dollar has been one of, if not the hardest-hit currencies relative to the U.S. dollar over the past couple of months,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The RBNZ has
been intervening in August and that’s likely to continue. Our view is that it’s still overvalued at current levels and there’s scope for further downside.”
The kiwi dollar dropped 1.2 percent to 77.71 U.S. cents as of 8:39 a.m. New York time and touched 77.09, the least since August 2013. Australia’s dollar declined 0.4 percent to 87.32 cents after touching 86.84, the least since Jan. 27.
The Bloomberg Dollar Spot Index rose 0.1 percent, having gained 3.8 percent this month, to 1,068.79. It is poised for the highest close since June 2010 and its monthly increase would be the biggest since May 2012.

Dollar, Euro

The U.S. dollar declined 0.1 percent to $1.2698 per euro and gaining to $1.2664, the strongest level since November 2012. It traded 0.1 percent higher at 109.44 yen after touching 109.75, the most since August 2008.
Key said the so-called Goldilocks level for the kiwi is around 65 cents, Interest.co reported, citing comments to reporters. While it was logical for the central bank to intervene at these levels, he wasn’t aware of such a move, Key was reported as saying.
RBNZ data released today showed the central bank sold a net NZ$521 million of the local currency in August, the most since July 2007.
“We are interpreting this as intervention,” Sam Tuck, a senior currency strategist at ANZ Bank New Zealand Ltd. in Auckland, said of today’s currency sales data. The kiwi “is likely to remain under pressure while people digest this, but I don’t think that today’s data should really surprise the market. The RBNZ has been very clear about this.”

Worst Performer

The kiwi has declined 4.1 percent in the past month, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The Aussie followed with a 3.4 percent loss, while the greenback has gained most, adding 4.1 percent.
Hedge funds and other large speculators raised net bullish futures bets on the dollar versus eight major peers to 238,056 contracts on Sept. 23, the most in eight months, from 185,458 a week earlier, data from the Commodity Futures Trading Commission in Washington showed.
The euro fell last week after Germany’s Ifo institute said its business-climate gauge slid to the lowest since April 2013. A report today is forecast to show consumer prices in Europe’s largest economy contracted in September from the previous month, according to the median estimate in a Bloomberg poll.
ECB President Mario Draghi said last week the central bank will actively manage its finances and is able to implement more stimulus if required to stave off the threat of deflation in the euro area. The comments came after he signaled this month that he intends to expand the ECB’s balance sheet by as much as 1 trillion euros with stimulus measures.

Police Crackdown

Hong Kong’s dollar plunged to the weakest level in six months amid the biggest police crackdown on protesters since the city returned to Chinese rule. The clashes, which saw anti-riot police use teargas and pepper spray on demonstrators, are disrupting businesses in one of Asia’s financial centers and risk a strong response from the government in Beijing if they continue.
The Hong Kong dollar, which is pegged to its U.S. peer, dropped as much as 0.1 percent to HK$7.7670 versus the greenback, the largest intraday loss since 2011.
The ruble weakened to a record, approaching the level at which Russia’s central bank said it would intervene in foreign-exchange markets to support the currency.
It fell 1 percent to 44.2949 versus the central bank’s target basket of dollars and euros. That’s about 0.2 percent from the 44.40 intervention level.