RBNZ re-establishes US dollar swap line with Fed, will US dollar liquidity up to $30bln

Further to the news earlier, whereby The US Federal Reserve announced that it has established temporary USD swap lines with Australia, Brazil, Denmark, Korea, Mexico, Norway, New Zealand Singapore and Sweden, the Reserve Bank of New Zealnd has confirmed the news and provided fuller details as follows: 

Key notes

• Says re-established temporary USD swap line with US Federal Reserve.
• Says temporary USD swap line with federal reserve to support provision of USD liquidity in amount up to $30 bln.
• Says actively invovled in financial markets to ensure smooth market functioning despite COVID-19.
• Says providing liquidity in FX swap market to ensure funding can be accessed at rates near official cash rate.
• Says term auction facility to give banks ability to access term funding, with collateralised loans available out to a term of 12 months.
• Says liquidity activity in FX swap market to increase in weeks ahead to support funding markets.
• Says removing allocated credit tiers for exchange settlement account system account holders.
• Says has been providing liquidity to New Zealand government bond market to support market functioning.
• Says remains ready to act further to ensure markets and financial system operate in stable and efficient manner.
• Says, to support monetary policy implementation, bank to remove allocated credit tiers for exchange settlement account system account holders.

The RBNZ has stepped in with additional measures on Friday to support the financial markets that are reeling under the economic impact of the coronavirus pandemic. “The measures we are implementing today provide additional support to domestic financial markets. We will ensure our operations make financial markets operate smoothly, said Assistant Governor Christian Hawkesby.

FX implications

The efforts by central bankers have so far fallen on deaf ears and we have seen a squeeze in the US dollar sending the dollar-bloc currencies off a cliff. NZD/USD has fallen from the 0.64 handle to as low as 0.5469. The situation remains fluid, so there could still be more downside to follow but the US government will not be at all pleased with the strength in the US dollar while New Zealand’s couldn’t have hoped for anything better at this juncture. However, such continued measures should help to relieve some of the panics and tightness in swap markets, potentially giving temporary relief to the downside in the antipodeans.