Kiwi rattled by central bank warning,
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[May 07, 2014]
By Patrick Graham
— The New Zealand dollar was the main mover on
developed currency markets overnight, falling more than half a cent
after its central bank warned it could intervene against a currency
boosted by rises in official interest rates.
The Reserve Bank of New Zealand has led its peers this year in
raising interest rates, driving a 13 percent rally for the kiwi
against the U.S. dollar since last August.
The U.S. dollar's failure so far to make good on predictions of a
surge this year - it languished close to six-month lows against a
basket of major currencies on Wednesday - have helped extend that
New Zealand's central bank governor Graeme Wheeler, who intervened
at slightly weaker levels for the kiwi a year ago, said the bank
could sell the currency if it stayed strong in the face of worse
fundamentals such as a further fall in export prices.
He also said further currency strength would be a factor in future
moves on interest rates although several strategists in London cast
doubt on whether that would prevent the bank from hiking official
"I would be reluctant to go too far with the story markets have
bought into overnight," said Adam Cole, global head of currency
strategy with RBC Capital Markets in London.
"On intervention it is a warning but I don't read it as a threat or
a clear signal they will intervene."
Still, while Cole predicts the bank will raise rates twice more, he
said there was relatively little room left for the kiwi to gain
The currency steadied somewhat in early European trade but was still
down 0.5 percent on the day to trade at $0.8688, more than a cent
below almost three-year highs of $0.8779 hit on Tuesday.
The dollar took a step lower when London returned from a holiday on
Tuesday and investors are braced for the possibility that dovish
comments from Federal Reserve Chair Janet Yellen could further
undermine the greenback.
The U.S. central bank's new chief is widely expected to hammer home
its dovish position at her congressional hearings on Wednesday and
Thursday, even after last Friday's upbeat U.S. payrolls report.
"She might be more confident about the U.S. labor market, but I
think there will be no major surprises in her speech," said Masashi
Murata, senior currency strategist at Brown Brothers Harriman in
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"We don't have any important U.S. data tonight, so there is no good
reason to accumulate long positions in the U.S. dollar," Murata
Many analysts and traders view the Fed's communication since
Yellen's arrival as somewhat garbled. An initial nod towards a rise
in interest rates in the first half of next year was quickly talked
down by policymakers and there is little faith the Fed will follow
its reining in of bond-buying with actual rate rises anytime soon.
That, along with flows of capital into euro zone capital markets,
has left this year's calls for a stronger dollar looking exposed.
Against the yen, the U.S. currency fell another 0.2 percent to a
three-week low of 101.43 yen. The crisis in the Ukraine added to the
traditional safe-haven appeal of the Japanese unit as Tokyo markets
reopened after being closed on Monday and Tuesday for the Golden
A somewhat downbeat Markit/HSBC services Purchasing Managers' Index
(PMI) for China also weighed on investors' appetite for risk.
Expansion in China's services industry slowed slightly in April,
with employment growth slipping to a seven-month low.
The dollar index <.DXY> was last at 79.114, up slightly on the day
but not far from the previous session's trough of 79.060. Against
the euro it was steady at $1.3924, within sight of two-month highs
of $1.3952 hit on Tuesday.
(Editing by Andrew Heavens)
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