World Economy

We Can't Influence 'Currency War': New Zealand Finance Minister

NZ's Finance Minister on Divestment Plans
NZ's Finance Minister on Divestment Plans

The Deputy Prime Minister and Finance Minister of New Zealand dismissed claims on Friday that his country is taking part in a global currency war, despite recent steps to temper strength in its domestic currency.

New Zealand's central bank governor told parliament on Wednesday that the bank had sold the New Zealand (Kiwi) dollar last month in an attempt to limit the sharp rise in the currency, the Financial Times reported.

This is the first time since 2007 the central bank has intervened in the forex market the report added. The is up 67 percent against the U.S. dollar since the beginning of 2009 and was trading at 0.8369 per dollar on Friday.

"New Zealand is not [in the middle of a currency war]," said Bill English, Deputy Prime Minister of New Zealand. "We have marginal ability to influence the [New Zealand] dollar through some peaks, the reserve banks can knock off some of the peaks...[but] we are not putting the public balance sheet at risk that others are taking in trying to affect their currency."

(Read More: Whiff of Currency War 'A Little More Pungent': Pro)

English was referring to the policies implemented by countries such as Japan, where Prime Minister Shinzo Abe's plans to revive the economy through aggressive monetary policy, fiscal stimulus and structural reform has worked to depreciate the yen by 16 percent this year. On CNBC Asia's "Squawk Box," the New Zealand Deputy Prime Minister said he was unconvinced that 'Abenomics' would ultimately be effective.

"We are in the camp that is a bit skeptical about the effectiveness of 'Abenomics' and the other versions of that around the world. It might inflate asset prices for a while, and some of that has an impact on New Zealand... We can't influence it, so we don't react to it much," he added.

Expansive quantitative easing by governments in recent years, such as we have seen in the U.S. and now Japan can dampen currency strength, making those countries' exports more attractive and putting them at an advantage over other countries with stronger currencies.

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Reducing interest rates is also seen as another tool to weaken domestic currencies. In recent weeks, a string of central banks have moved to cut their interest rates, including India, Australia, the euro zone and South Korea.

(Read More: The Race to Cut Rates: Look What Japan Started)

Strength in the New Zealand dollar was a result of a resilient economy, said English which held up well following the financial crisis of 2008-2009. He was expecting the economy to grow between 2.5 and 3 percent over the next two and a half years and expects the country's budget to reach a surplus by 2014.

(Read More: 'Abenomics' Is Going to Fail: Mr. Yen)

New Zealand has been highlighted as a possible destination for Japanese investors, following an increase in liquidity in Japan, as it offers one of the highest interest rates in the world at 2.5 percent, compared to near zero percent interest rates in other Western economies. But English said New Zealand's connection with Japan has weakened in recent years.

"In the past they've [Japanese investors] been a significant long term investor in New Zealand but our exports to them have dropped off just because they've had such a long period of flat growth," he added.

"Irrational Exuberance"

English also said there has been a level of "irrational exuberance" in the Australian mining sector in recent times.

Australian's mining sector has boomed in recent years, thriving off the back of demand from its largest trading partner, China. However, as China's growth has begun to slow, posting 7.8 percent growth in 2012, its lowest rate since 1999, analysts have become less optimistic about the sector.

(Read More: Commodity Super Cycle Is Dead: Citi)

"I agree with that view [that the commodity super cycle is over]. There's been a bit of an irrational exuberance in Australia around the mining cycle, but there are still strong prospects for them. We see it flattening off but by no means retracing to some of the levels that the more bearish view people are talking about. China still has room to grow," he added.