KEY POINTS:
Five days after the currency intervention, two questions remain: was the Reserve Bank successful and what benefits would intervention bring?
The Reserve Bank's aims in currency intervention are relatively modest. While exporters have long been agitating for a lower currency, the bank isn't trying to drop the kiwi by 5c or 10c, or even to change its direction.
Instead, it aims to trim the "extreme tops and bottoms" of the exchange rate cycle.
This begs the question of what a small and even temporary change in the level of the kiwi would actually achieve. "We believe there will be positive benefits that exceed any of the relatively small and manageable risks of such a policy," said then Deputy Governor Adrian Orr in a 2004 speech.
"Given the prominence of the level and cyclical variability of the exchange rate in investment, output, employment, and inflation decisions, even a small impact from intervention on the exchange rate can have widely dispersed economic benefits."
The Reserve Bank declined this week to expand on what Orr meant.
But HSBC chief economist John Edwards says he can't see any advantages to be gained from a currency intervention with such modest aims.
"I don't see any benefit in moving an exchange rate from US76c to US75c," says Edwards.
"There is no point in the intervention it made this week.
"I don't see any benefits in a very small change and I think the timing for a big change is quite inappropriate.
"The market is not in my view pushing the exchange rate beyond anything that could be considered reasonable."
Deutsche Bank chief economist Darren Gibbs said any benefits - and detriments - would be marginal.
"There are clearly benefits to the tradeable goods sector, even if they lower the kiwi by half a cent relative to where it would have been," he says.
But a lower currency will also at the margin put upwards pressure on interest rates.
"To the extent that they're taking pressure off the export sector then that implies a little bit more pressure, potentially, if they have to offset that with higher interest rates."
By 5pm yesterday the kiwi was trading at US75.25c, down from the post-float high of US76.40 hit last Friday night. The trade weighted index - the Reserve Bank's preferred currency measure - was at 73.58, compared with nearly 74.50 last Friday night.
How much of this fall was due to intervention and how much due to other factors such as a stronger US dollar over the past week is impossible to know.
"On the surface of it right here right now we've come off on the trade weighted index and that's the key focus for them so you could say 'yes it's been successful'," says ANZ currency dealer Alex Sinton.
John Rothfield, senior currency strategist at Banc of America in San Francisco, says the Reserve Bank was probably trying to buy time, because eventually global liquidity would start to dry up and there would be less money pouring into New Zealand.
Intervention could make investors think again before they bought New Zealand dollar assets.
"A more significant objective may have been to create some uncertainty in a market where there are some other high yield opportunities available," said Rothfield.
"This at the margin may discourage some of the funds going into New Zealand."
