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In market-speak, when a politician or a central banker makes comments like "the dollar is overvalued" or "the economic fundamentals don't support a currency at these levels" in an attempt to influence the dollar, it's called jaw-boning.
Or in common parlance, talking the dollar down.
If that's what Reserve Bank Governor Alan Bollard was trying to do with the comments he made about the damaging heights of the kiwi when announcing he was keeping interest rates on hold yesterday he, well, failed. Dismally.
As if to spite him, the kiwi spiked about half a cent soon after and overnight went higher still, hitting another - yes another - post-float record of 83.01 US cents.
That reaction would tend to indicate that market-watchers view the statement as - and here's another common market term - 'hawkish".
Basically, it's being interpreted as the Governor being more comfortable with the economy's recovery and he is therefore now likely to raise interest rates sooner than previously expected.
Before the end of the year, in fact.
It's had mortgage holders on floating rates handwringing about whether the time to fix is fast approaching.
(For the record, ANZ National's chief economist Cameron Bagrie said floating is still the best option ).
Bollard believes the market's reaction was actually an overreaction. "I'm a bit surprised about it, quite frankly...something is not being interpreted correctly," he told Radio New Zealand this morning.
The Governor knows better than anyone that currency watchers agonise over what he says, what he doesn't say and the tone in which he says it. Which tends to consistently be deadpan, I find.
So has the market mis-interpreted his signals, or has he mis-communicated them?
Time for an intervention?
That Bollard steadfastly refused to comment on whether he is or would consider intervening to bring the dollar down is no surprise.
If he gave away a detail like that, every currency trader in the world would use it to their advantage and render the exercise one in futility.
He did, however, reiterate that the intervention option is not all-powerful.
He told me on AMP Business today : "We've always had pretty limited expectations. We think under appropriate circumstances at the right time one can have a short term effect either knocking a peak or reducing a trough, but we don't think we can change a broader trend."
Basically, if it's moving up decisively there is precious little the Bank can do to stop it.
For his part, this week Prime Minister John Key indicated he doesn't subscribe to the view that it works, either.
Given there are a plethora of factors that appear to be hastening the currency's ascent - the weakness of the US dollar and sky-high commodity prices being the primary ones - perhaps now isn't the time to intervene?
Commentator Bernard Hickey from interest.co.nz doesn't buy it.
This morning he tweeted "Dear Alan Bollard. Stop faffing around. Intervene now to pull our crazily over-valued currency lower. Jawboning doesn't work."
Bollard might have to take that one on the chin. Especially if our market commentator this morning is right in his prediction - next stop: 85 US cents.
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Add a Comment:
Post new commentnztifosi said on 2011-06-03 @ 17:26 NZDT: Report abusive post
Just when my family was making headway financially the government chose to cut tax and put GST up. At the same time funding to the school I work at was cut resulting in an hours cut for me. Result? We are now worse off than ever before! And now we are supposed to spend, save, donate to Canterbury and every other charity as if the current situation were the working man's fault. It is the speculaters and the financiers along with the government who got us into this mess! -now they can get us out!
deltics said on 2011-05-19 @ 12:38 NZDT: Report abusive post
Saving isn't what NZ needs right now, it needs to pay off it's debt AND increase spending. Money paid into KiwiSaver doesn't reduce our current debts and doesn't circulate around or stimulate the economy! So it actually makes a lot of sense for the government to reduce the incentives to pay into KiwiSaver whilst emphasising the need to be more prudent in our spending (paying down debt) without closing our purse strings too tightly in the process.
ceejaygee said on 2011-05-15 @ 12:33 NZDT: Report abusive post
i currently pay 4% into kiwi saver i would like to pay 6% unfortunately there is no provision for that hopefully the govt have thought about that. as to the tax credit cut not a clever idea, maybe they could make it totally tax free then we could really save for our retirement then they could cut the tax credit altogether
Danthetaxpayer said on 2011-05-14 @ 19:10 NZDT: Report abusive post
I would also like to ask how is it retirement savings are even a priority when we fail so badly as a country to take care of our children? Children who are meant to be our future taxpayers helping to fund future NZ Super? Children who are often neglected, illiterate & who struggle to get the medical assistance they need due to health care shortages and whose families often have to fundraise? Why are these things not a priority?
Danthetaxpayer said on 2011-05-14 @ 19:07 NZDT: Report abusive post
I'm confused: how is it saving when most of the 1.67 odd million people with Kiwisaver are probably receiving some kind of government assistance. Assistance is for hardship and to meet basic needs - food, clothing, shelter only. If they have enough spare to put into Kiwisaver which then gets matched by more taxpayer funds earned by the hard work of others, then isn't this the horse before the cart? Further, how can it truly be savings when we are borrowing $300 million each week?