The Reserve Bank of New Zealand on Wednesday said it had been selling New Zealand dollars on the currency market to limit its strength as the "kiwi" approaches its highest level since it was floated in 1985.
"There has been intervention," RBNZ Governor Graeme Wheeler told a parliamentary committee. No details were given when currency market operations had taken place, but deputy governor Grant Spencer added: "It will become evident in the data, in our balance sheet."
The New Zealand dollar fell to a session low around $0.8360 after the comments from around $0.8440 beforehand. It last traded at $0.8400.
The central bank's latest balance sheet, which covers transactions through March, shows scant selling of New Zealand dollars from the bank's reserves during the first three months of the year, after it sold a net NZ$199 million in December.
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The figures do not cover transactions in April, when the New Zealand dollar rose to a 20-month high of $0.8676. It is hovering near a post-float high around $0.8850 hit in August 2011.
"We've indicated on the record that we are prepared to intervene in the exchange rate," RBNZ Governor Graeme Wheeler said.
"We've also indicated that we would not expect the strength of the flows from intervention to materially change the exchange rate, although it could potentially take the top off (currency strength)."
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The New Zealand dollar has been driven higher by the country's attractive yields, and the wall of money unleashed by massive monetary easing campaigns by global central banks, led by the U.S. Federal Reserve and the Bank of Japan.
New Zealand's 10-year bond is currently trading around 3.2 percent, compared with a yield of 1.78 percent for its U.S. Treasury counterpart.
The RBNZ's latest intervention also comes amid the recent talk of a global currency war where nations indulge in competitive currency devaluations as they try to spur growth through expansionist domestic monetary policies.
Wheeler added that much of the flows into the currency over the past year or so had been driven by official flows, including central banks which have been diversifying out of major currencies.
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Earlier, Wheeler told the committee the currency may appreciate more if investors expected the country's economy to outperform, raising expectations of higher rates.
"The extent that interest rates (could be) raised creates the potential risk that New Zealand would be seen to be in a tightening phase, which could put more pressure on the exchange rate," Wheeler said.
Earlier, the RBNZ said in its six-monthly financial stability report that the housing market was raising the risks to the country's financial system, as banks has eased lending rules and households were taking on more debt.
The RBNZ said it would now require the country's top four banks to raise the risk weighting for new high value loans, which would see a rise of around 12 percent in the capital needed to back house lending.