Central banks love to intervene in the markets when liquidity is low because that is when they will get the most “bang for the buck.” For the Reserve Bank of New Zealand, this is particularly important because their war chest for intervention is estimated to be only USD$5.3 billion.
Although the RBNZ is suspected of having intervened three times last month, the only time that they officially confirmed intervention was on June 11th. It is not a coincidence that the central bank chose to intervene when Australian markets were closed for the Queen?s Birthday. If they intervened on a holiday once, they can do it twice. Central bank Governor Bollard must be extremely frustrated that their intervention has done nothing to stem the New Zealand dollar?s rise. In fact, the New Zealand dollar rose to a fresh 25 year high against the US dollar this morning before ending the day slightly lower. For more on whether intervention is effective, see our Special Report. Tonight, we also have the Reserve Bank of Australia rate decision followed by the Australian trade balance. The announcement should be a non-event because the RBA is not expected to raise interest rates and when they do not, no statement is released. The recent strength of the Australian dollar is expected to push the trade balance lower in the month of May. A weak number would follow today?s sharp disappointment in retail sales.