The knife doesn't go anywhere - it's dangerous up there, above the water, and Ilde has places to be - but whatever she is, the little fairy isn't interested in threatening him. Her tail is part-visible through the water, constantly moving to keep her where she is, but she's still not rising too far.

She considers for a split-second, then says, "The birds don't like magic." She'd seen that, on her way here, so if he hasn't got any, he should probably avoid getting in a fight with them; some free advice, while she's here.