New Zealand Dollar - Time for Intervention

Moments ago Royal Bank of New Zealand's Wheeler said the Kiwi was overvalued and that the RBNZ stood ready to intervene in the currency if necessary. The RBNZ members have long since been annoyed by what they consider to be an extremely high exchange rate due to speculation; but this is the first time they've mentioned the possibility that they may intervene in the FX market.

The Kiwi pairs have been trading at high levels recently and this announcement has surprised the market. There's plenty of room to the downside, and it seems probable that NZD/USD will come under significant selling pressure during the upcoming European and US sessions.

The important thing to know about NZD/USD is that it isn't as liquid of a currency pair compared to USD/CAD or AUD/USD. If this pair starts moving down and picks up momentum, the lack of liquidity could cause a sharp move down if carry trades begin to be unwound. The lack of liquidity can make it costly to unwind large trades, and this kind of comment could cause traders to start unwinding their trades now to avoid getting stuck in a nasty situation later on if NZD/USD dumps.