The opposition Labour Party says the Reserve Bank of New Zealand should be considering currency intervention to signal to the market its unease over the high New Zealand dollar against its US counterpart.
The NZ dollar hit a post-float high of 83 US cents overnight, after the Reserve Bank yesterday released its June quarter monetary policy statement, which markets took as leaning more toward an Official Cash Rate hike in December this year, rather than the first quarter of 2012.
Reserve Bank Governor Alan Bollard reiterated the central bank's stance on currency intervention, saying any moves would be to take the top or bottom of an exchange rate cycle - meaning the Reserve Bank would have to think the currency was about to change direction. Bollard said yesterday the RBNZ could not fundamentally change the direction of the NZ dollar, as it was primarily driven by offshore forces.
Bollard also said the Reserve Bank watched the TWI in terms of its currency policies. Although the NZ-US cross rate is at a record high, the TWI has not hit highs largely due a weak NZ dollar against the strong Australian dollar (see exchange rates in the chart below). Australia is New Zealand's single-largest trading partner, meaning exporters selling goods and services across the Tasman are benefiting from that exchange rate, while commodity exporters using the NZ-US exchange rate have generally experienced price rises greater than the currency's rise.
That leaves non-commodity exporters into the US market, or markets that peg their currencies to the US dollar feeling most of the brunt of the high currency.
Prime Minister John Key waded into the debate on Wednesday, saying he did not think currency intervention policies worked, although he was happy with the RBNZ’s guidelines that any intervention would be to take the tops and bottoms off the exchange rate’s cycle.
On Friday afternoon, Labour Party finance spokesman David Cunliffe said in a statement the Reserve Bank should be "actively considering selective intervention in currency markets to signal its unease at the current levels of the dollar," although the decision to do so should remain with the RBNZ.
The Labour Party has signalled it would change monetary policy in order to make the Reserve Bank take more consideration of export and growth objectives, as well as its current task of controlling inflation.
"Today’s all-time high for the Kiwi dollar against the US dollar on the back of yesterday’s Reserve Bank statement shows our non-agricultural exporters will continue to be in serious trouble without appropriate monetary reform," Cunliffe said in a joint press statement with Labour economic development spokesman David Parker.
"Although the Reserve Bank can technically intervene in currency markets, its reluctance to do so even when the Kiwi dollar is setting record highs shows the balance of monetary policy is not right," Cunliffe said.
“While the Reserve Bank is significantly more bullish than Treasury, Labour has been advocating for some time a change to the Reserve Bank Act to promote a better balance between anti-inflation, export and growth objectives.”
A broader range of tools were needed for the bank to achieve this balance, Parker said.
“It is not all the Reserve Bank’s fault. It has become clear in recent weeks that the Government is borrowing an astounding NZ$5 billion more than it needs to [for the current year to June 30]. This is putting more pressure on our currency. Once again the Government is favouring its own interests over the interests of our non-agricultural exporters," Parker said.
“Non-agricultural exporters are withering and jobs are being lost in the face of an ever-appreciating exchange rate as the Kiwi dollar is becoming one of the highest-traded currencies in the world,” he said.
"The Reserve Bank should be actively considering selective intervention in currency markets to signal its unease at the current levels of the dollar," Cunliffe said.
“Such decisions must rightfully remain the prerogative of the bank, however,” he said.
“Labour is committed to a high growth, job-rich, export-led recovery. Monetary policy must play its part in achieving this.”