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Forex Gump is my incognito name. My real name is Feras Gimp. When I was a kid, my parents would make me hunt and gather food. So every day, I would go fish at a nearby lake and gather corn from the fields. This process took me all day and left no time for me to play. Play time actually didn’t... More
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  • The RBNZ's Little Secret 0 comments
    May 10, 2013 12:05 PM

    The jig is up! Early yesterday morning, the Reserve Bank of New Zealand (RBNZ) admitted that it intervened in the forex markets recently to weaken the New Zealand dollar.

    Although we don't know exactly when the central bank began its "secret" operations, NZD/USD price action suggests that it may have started around the middle of April.

    If you take a look at the charts, you'll notice that the pair topped out at around .8676 and then proceeded to drop sharply for no apparent fundamental reason.

    (click to enlarge)

    What seems to be furrowing RBNZ Governor Graeme Wheeler's brow is how the New Zealand dollar's persistent strength might affect the housing market. As you may know, the housing market has been a pain in the neck for the central bank for a while now, as house prices have been soaring and posting record highs.

    Meanwhile, the RBNZ has been unable to boost borrowing with lower interest rates because of the New Zealand dollar's stubborn strength. The strong Kiwi has also been hurting the exports industry and has been a major obstacle for an economy that's still struggling to recover from the devastating earthquakes that struck Christchurch.

    In fact, Wheeler has been hinting at his intention to keep the Kiwi's gains in check ever since he stepped into office last year. Recall that, in his first statement as RBNZ Governor in October 2012, he already remarked at how the strong Kiwi has been hurting New Zealand's exports. A few months later, in his February statement, Wheeler blamed the overvalued Kiwi for keeping inflation at the bottom of their target range.

    During those instances though, the Kiwi still managed to rally as traders focused on Wheeler's relatively optimistic assessment of the New Zealand economy instead of his subtle clues on intervening in the currency market.

    Whether it caught you by surprise or not, the recent RBNZ move proves that the central bank is not hesitant to intervene in the forex market. Moving forward, Kiwi rallies could be more subdued, as NZD/USD might be unlikely to make any headway past the .8600 area.

    Moreover, the latest RBNZ intervention has revived the currency war issue. The RBNZ's willingness to intervene directly in the markets suggests that smaller economies have been pressured to act on retaining their competitiveness in the global markets because of the quantitative easing programs of larger economies such as the U.S., euro zone, and Japan.

    Do you think other central banks will intervene as well? Let us know what you think by voting in our poll below!

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