The New Zealand dollar dropped sharply in mid morning trade today, shedding half a US cent in about five minutes and prompting speculation of Reserve Bank intervention.Let us assume that it is intervention by the RB that caused this, What is the point? As soon as the intervention stops the dollar will go back to where it began, assuming other factors haven't changed. And if other factors have changed to bring the dollar down, there seems no point to any intervention. To keep the dollar "low" the RB would have to keep on intervening and it can't do that, so what does the RB get for its effort?
The kiwi fell, from 9:15am when it was trading at 83.96 US cents, to 83.40 US cents at 9:21am. The local currency subsequently touched a six-month low of 83.36 US cents and was recently trading at 83.44 cents.
The TVNZ article goes on to say,
New Zealand's Reserve Bank has previously said the local currency is too high and raised the possibility it could intervene in the market by selling kiwi in an attempt to push it down.Which brings us back to the old question of what does "high" or "low" even mean? After all the exchange rate is just the price of foreign exchange and like all freely determined prices, they are what they are. "High" or "low" has little meaning.