The New Zealand dollar fell after Reserve Bank governor Graeme Wheeler said he may intervene to dampen the currency's rise because the kiwi is still over-valued.
The kiwi was trading at about 81.33 US cents before the 8am speech and recently traded at 80.92 US cents, from 80.68 cents at 5pm yesterday.
The central bank is expected this afternoon to detail how much kiwi it sold last month in an attempt to weaken the local currency, which Wheeler said today was significantly overvalued. An easing in house price pressures would increase the possibility that interest rates could stay at their current 2.5 per cent beyond this year, Wheeler said.
"The market saw the speech as reducing the possibility of any interest rate hikes to deal with the housing market," said Sam Tuck, senior manager FX at ANZ New Zealand. "That would naturally lead to a lower dollar because of lower yields."
The central bank is likely to say it sold $200 million to $400 million of the local currency in April to halt its rise, Tuck said. Wheeler may spend as much as $500 million a month of the bank's $9 billion capacity to limit the local currency's rise over the next few years, Tuck said.
The central bank will use macro-prudential tools to limit housing loans as soon as possible to try and ease house price pressures, and at the same time ramp up its currency intervention rhetoric and activity, Tuck said.
The local currency dropped to 83.95 Australian cents from 84.39 cents at 5pm yesterday and fell to 81.75 yen from 82.60 yen. It fell to 53.40 British pence from 53.70 pence and slid to 62.47 euro cents from 62.77 cents. The trade-weighted index declined to 76.34 from 76.57.