The Reserve Bank's latest attempt to push the kiwi lower by intervening was shrugged off by markets yesterday, as the currency climbed to a 19-year high against the yen.
The central bank yesterday refused to confirm it had intervened again in the foreign exchange market, unlike last weekwhen the bank publicly announced it had intervened for the first time in 22 years.
However, currency market sources confirmed the central bank had been selling the kiwi shortly before 9am yesterday.
Just before the intervention, the kiwi was trading around US75.50c and at 73.50 on the trade-weighted index (TWI) - the Reserve Bank's preferred currency measure. About half an hour later, it had dropped to US75c and 73.30 on the TWI.
But the fall was short-lived, with the kiwi grinding higher throughout the day to be at US75.47c and 73.64 on the TWI by 5pm as demand from Japanese investors pushed the currency higher.
The kiwi climbed to a 19-year high against the yen of 93.30 just after the market closed yesterday.
According to the conditions for intervention, the Reserve Bank can intervene "only when it assesses that there is a material prospect of influencing the exchange rate".
However, yesterday's intervention took place as the US dollar and the yen were weakening - meaning the kiwi was likely to gain.
"So far the intervention efforts have not dented the ongoing demand for high-yielding currencies in this time zone," said Sydney Deutsche Bank currency strategist John Horner.
The kiwi has climbed from its low of under US39c in late 2000 - in part as Japanese retail investors have bought it, attracted by rising interest rates.
"Intervention is going to be a lot more successful if they intervene in an environment when the background is more favourable, where we've got risk aversion or general US dollar strength, rather than in an environment where the US dollar is under a little bit of pressure," said Horner.
Bank of New Zealand currency strategist Danica Hampton said it was difficult to know how successful intervention was in the absence of a counterfactual case.
"This morning's action appears to have taken the heat out of the currency, and who knows how high it would have gone if they hadn't taken the action."
