The Reserve Bank of New Zealand (RBNZ) sold net 521 million NZDs in the FX market last month, confirming the market’s suspicions that the bank intervened to weaken the kiwi. The RBNZ has been very clear about its distain for the seemingly overvalued commodity currency, with the bank continuously stating that the level of the NZD is unjustified and unsustainable.
This rhetoric intensified last Thursday in a speech that caused the NZD to fall around 1.3% against the US dollar (see: Wheeler assaults the kiwi). At the time we stipulated that the market cannot ignore the threat of intervention from the RBNZ, and today’s data highlights that point. As it turns out, last week’s speech from Wheeler was just warming the market for today’s figures.
Even though the market had already suspected the RBNZ of intervening on August 25 – liquidity was thin and NZDUSD mysteriously dropped around 60 pips in a few minutes – today’s report shows that last month’s bout of intervention was the largest since a targeted attack on the exchange rate in 2007. This highlights how determined the RBNZ is to materially weaken the exchange rate, and it can justify its actions due to its belief that the NZD is significantly overvalued in the face of falling commodity prices. Even PM Key is on the bashing NZD bandwagon. He reportedly stated that the Goldilocks level for the nation’s currency is around 0.6500 against the USD and it’s logical for the RBNZ to intervene.
However, it shouldn’t come as a massive shock to the market that the RBNZ sold NZD to weaken the exchange rate. The bank has been very clear about the need for a readjustment lower in NZDUSD, which we have been considering verbal intervention. So, while we can see further weakness in the long-term for NZDUSD, the short-term future is unclear. In saying that, today’s price action and the threat of further intervention from the RBNZ may have scared away some NZD bulls.
NZDUSD
From a technical perspective, we remain bearish on the pair in the long-term. Yet, it is looking massively oversold on some timeframes, thus we cannot rule a purely technical correction to the upside. Ultimately, we are closely keeping our eyes on a key support zone around 0.7685.
Source: FOREX.com
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