They sold big, and then they bought - a little.
The Reserve Bank (RBNZ) has followed its sale of almost NZ$4 billion during July with a net gain of NZ dollars in August - albeit of just $84 million.
However, small as the net gain of Kiwi currency was in August, that's still the biggest net gain of NZ dollars that the RBNZ has actually conducted since 2015.
And even though the central bank did buy some Kiwi dollars in the past month, it still increased the stash of offshore cash it has available for intervening in foreign exchange markets - if it needs to.
This is according to the RBNZ's foreign currency assets and liabilities monthly figures.
Earlier this year the RBNZ indicated that it was going to put more of its assets into foreign currency.
The RBNZ announced that it and the Finance Minister Grant Robertson had agreed to a "new framework" for managing foreign reserves. As part of this, the amount held in offshore currencies would increase - but the RBNZ's not telling us by how much.
Then later in the year the New Zealand government added half a billion dollars to the Reserve Bank’s balance sheet last month and gave it an indemnity to provide fire-power to intervene in currency markets.
Then in July came the selling of NZ$4 billion.
This is all ultimately about increasing the so-called foreign currency intervention capacity - which is essentially available foreign denominated money that the RBNZ could use to intervene in the foreign currency markets and affect the value of the Kiwi dollar, if necessary.
(There's detail in this story on the RBNZ's approach to intervening in the currency markets).
The RBNZ describes the foreign currency intervention capacity as foreign currency assets that are readily liquefiable less foreign currency liabilities that fall due in the next 12 months.
The sale of the NZ$4 billion in July increased the foreign currency intervention capacity to $16.699 billion. Previously the central bank had been maintaining an intervention capacity of around $12 billion.
And even though the RBNZ actually had a net gain in NZ dollars in August of the above mentioned $84 million, it has further increased its foreign currency intervention capacity during the month to $17.573 billion, which is a new all-time high.
But, obviously there's still no indication from the RBNZ as to whether it plans to increase the figure still further.
12 Comments
Yes, they foresee a near future where they will have to cut rates significantly. If US and other major economies are still holding high interest rates then this will cause NZD to crash. Basically NZD will drop way more than where it is currently.
When this happens RBNZ intends to intervene with this reserve and buy NZD so that its price is buoyed up.
New Zealand government added half a billion dollars to the Reserve Bank’s balance sheet last month and gave it an indemnity to provide fire-power to intervene in currency markets.
Gentlemen Winchester shirt, red braces and cocaine. We're going for a punt on the Kiwi!
A better explanation is called for, unless I am missing something.
The rapid change in RBNZ Net foreign assets since May 23 from a steady prior state has yet to be explained.
The D10 'Net FX swaps and basis swaps' entry for June 23 provides unexplained clues.
Why would we ever want to prop up the NZ dollar? Sell foreign currency and buy New Zealand currency.
That is a bad idea.
If you intervene in the currency by selling NZDs, then the reserve bank is selling what it can create out of thin air - no loss to us. Currency goes down, we sell more stuff to the world. Exporters do well, domestic consumption goes down. Everyone is happy.
If you intervene in the currency by buying NZDs you consume scarce foreign reserves - what China is doing now. Hurts exporters, encourages imports and consumption. Plus, doing this is generally ineffective especially for a small economy like NZ in a big global sea.
Colonial Viper,
And i remember it well. On what became known as Black Wednesday, the Chancellor-Norman lamont- raised interest rates twice in a matter of hours, but to no effect and then gave up; lowered the flag and rates back to where they were. The stockmarket took off and that was my business. The UK was forced out of the then currency union-long before the Euro was launched. Soros is said to have made $1bn on that trade and that was big money then, over 30 years ago.
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