Dollar falls on Bollard's 'jawbone'

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The New Zealand dollar fell sharply today care of comments by Reserve Bank of New Zealand (RBNZ) governor Alan Bollard that caught the market at a time when the NZ dollar and other currencies were in retreat as the US dollar firmed.

The NZ dollar was at US77.64c at 5pm, down from US78.29c at 8am and US78.66c at 5pm yesterday. The US dollar edged toward its highest level since October today and the euro has been weak on renewed concern about eurozone debt.

By looking at the Australian dollar cross, factors in the US dollar market are stripped out and the NZ dollar still fell.

Imre Speizer, currency strategist at Westpac, said the NZ dollar fell from around A77.66c just before Dr Bollard spoke about the currency and it was A77.45c about an hour later. By 5pm it was A77.50c from A77.66c at the same time yesterday.

When releasing the six-monthly Financial Stability Report, Dr Bollard attributed the strength of the NZ dollar to developments involving the major economies, but also questioned how recent data in this country, including employment and retail trade, had been viewed by investors.

In the past couple of weeks financial markets had "taken it into their head" to interpret some New Zealand data more strongly than the RBNZ might have done, Dr Bollard said.

"If there's some misinterpretation of New Zealand data, as we fell there might have been over the past couple of weeks, then we'd look for the market to correct that."

Mr Speizer said the Financial Stability Report was not a monetary policy document.

"It was all the comments around it in the question and answer session which were important to the market," he said.

TD Securities senior strategist Annette Beacher said Dr Bollard had shown great timing in talking down the NZ dollar after ructions in foreign exchange markets overnight.

But for Dr Bollard to be given credit for a fall today was completely misguided, as the euro and Australian dollar similarly nosedived, Ms Beacher said.

Mr Speizer said Dr Bollard was clearly trying to "jawbone" the NZ dollar as had several government officials in recent days.

He was careful not to signal interest rates moves.

There were other things going on in currency markets at the moment. The daily fix of the yuan rate had been allowed to drift higher in the last few days and this was seen as positioning by China ahead of a G20 meeting at which it was likely to be criticised for keeping its exchange rate weak.

The disease threat to New Zealand's kiwifruit industry is also an ongoing negative factor for the NZ dollar.

The NZ dollar fell to 0.5649 against the euro down from 0.5667 yesterday and 63.44 yen from 63.61 yen yesterday.

The trade weighted index was 68.94 at 5pm from 69.30 yesterday.

- NZPA