The New Zealand dollar had a roller coaster day on Wednesday, hitting a three-year high of 87.8 US cents but dropping back after some jawboning from Reserve Bank Governor Graeme Wheeler.
It then fell further after figures were released showing the unemployment rate failed to budge from 6 percent in the March quarter, when economists had expected an unemployment rate of about 5.8 percent. Around the close of trading it was slightly under 87 US cents.
Mr Wheeler said the bank would consider intervening in the currency by selling New Zealand dollars if the dollar remained high, even if economic conditions deteriorated.
Speaking at a dairy conference on Wednesday, Mr Wheeler said the exchange rate was overvalued and the bank did not believe its current level was sustainable.
Senior foreign exchange strategist at ANZ Sam Tuck said the three-year high was driven by a broad-based sell-off of the American dollar and came as the sixth successive price decline occurred at Fonterra's dairy auction.
Mr Wheeler told the audience that the exchange rate could be weakened if global dairy prices continue to come off their recent highs, the American economy continues to improve, there is a slow down in China or financial market volatility begins to rise.
He said a continuing strong local currency is likely to keep a lid on inflation in the tradeables sector, and that if this is the case the high exchange rate, along with new economic data, will be a factor in the central bank's decision on the extent and speed rises to the Official Cash Rate will be made.
The senior foreign exchange strategist at ANZ, Sam Tuck, said the three-year high was largely due to the weakening US dollar, and Mr Wheeler's speech took the wind out of the dollar, which nevertheless remained very high.
Shortly after 5pm on Wednesday, the New Zealand dollar was trading at 86.89 US cents, 93.03 Australian cents, 51.16 British pence, 0.6239 euro, 88.26 yen and 5.41 renminbi.