Kiwi will keep flying high

Most of the Western world is still “fighting off anaemic growth… with near-zero interest rates”, says Andy Mukherjee on Breakingviews. Not New Zealand. It is enjoying such strong growth that its central bank hiked rates last week.

The main rate rose from 2.5% to 2.75%, and the bank said another 2% or so of rate hikes would be needed to keep a lid on inflation over the next two years.

Sharply rising dairy prices, fuelled by Chinese demand, are boosting export earnings. Consumer confidence has risen as unemployment has fallen to a four-year low of 6%. A buoyant housing market is also underpinning growth.

Rebuilding following the Christchurch earthquake in 2011 will give GDP a further boost this year, reckons HSBC, to 3.4% – the strongest since 2007.

New Zealand’s relatively robust outlook, and the accompanying promise of further rate hikes, bodes well for the New Zealand dollar. Moreover, New Zealand has the highest interest rates in the developed world, which is of interest to carry traders (who sell low-yielding currencies to buy high-yielding ones), says Thebull.com.au.

With interest rates in Australia set to remain steady or even fall, the Kiwi, which now buys AUD0.94, could soon be at parity with its Aussie rival for the first time in 40 years.

Merryn

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