* RBNZ Gov says NZ$ over-valued and unsustainable
* RBNZ could sell NZ$ if currency does not weaken
* High a currency factor in deciding on future rate rises (Adds details, quotes, market reaction)
WELLINGTON, May 7 (Reuters) - New Zealand’s currency reflects the country’s better economic strength but is over-valued and unsustainable at current levels and might prompt the central bank to intervene, the governor of the Reserve Bank of New Zealand said on Wednesday.
Central bank Governor Graeme Wheeler said the currency, which struck a 2-1/2 year high of $0.8779 overnight, could be expected to weaken if the Chinese economy were to slow, dairy prices fall and the U.S. economy improved.
“If the currency remains high in the face of worsening fundamentals, such as a continued weakening in export prices, it would become more opportune for the Reserve Bank to intervene in the currency market to sell New Zealand dollars,” Wheeler said in a speech to a dairy farming conference.
The currency, known as the kiwi, dropped more than a third of a cent after the comments to a low of $0.8700. It last traded at $0.8718.
Wheeler said a high currency would contain tradable inflation pressures, and along with economic data, would be a factor in its rate-raising decisions.
An analyst saw Wheeler’s comments as a strong piece of jawboning after the central bank’s relative silence in recent months.
“We are closer to intervention. It would not be a surprise if they were to do it one day,” said Westpac senior currency strategist Imre Speizer.
“It’s stronger rhetoric against the exchange rate than we have seen from this governor yet.”
The RBNZ started its long-awaited rate-tightening cycle in March, becoming the first central bank in a developed economy to raise rates. The official cash rate was raised by 25 basis points in its past two meetings to the current 3 percent.
The bank is widely expected to raise rates by a further 25 basis points in its June monetary policy statement, before possibly taking a breather because of benign inflation pressures and the high currency.
The full speech is available at:
Editing by Chris Reese and Dan Grebler