After watching the New Zealand Dollar (“Kiwi”) rise to a 22-year high in trade-weighted terms, the Bank of New Zealand decided it had had enough and intervened directly in forex markets to hold down the value of the currency.  Last week, the Bank was forced to raise interest rates due to soaring inflation.  Strong commodity prices and a commensurately strong economy have ushered in a surge of foreign capital, which in turn, have driven the Bank to hike rates, which in turn has made New Zealand more attractive to foreign investors.  This vicious cycle proved frustrating enough that the country’s Central Bank evidently felt the only way to curb the currency’s rise was to actively hold it down.  The Economist reports:

A strong currency can be a curse for exporters, however. In New Zealand’s case, the carry trade has given the kiwi dollar an extra upward push. With the yen nearing five-year lows against the American dollar this week, such trades may well continue.

Read More: A Warning Shot