"The extent and timing of such pressures will depend largely on movements in the exchange rate, changes in commodity prices, and the degree to which momentum in the housing market and construction activity spills over into broader cost and price pressures"
-Graeme Wheeler, RBNZ Governor
AUD/NZD currency pairs is still one of the main losers, as Australian jobless rate rose for a second consecutive month, while the Reserve Bank of New Zealand stepped up its inflation-fighting rhetoric and pledged to start increasing interest rates in the first half of 2014, sending the kiwi higher. The Aussie/kiwi cross has plunged more than 150 pips since Wednesday and hit the lowest level since October 2008. However, further depreciation is likely to be limited, as the pair is facing a strong support at 1.089.
Nonetheless, in a longer-term the pair is expected to extend its dip as the RBNZ signalled they will increase the official cash rate as it is needed to keep future inflation outlook around the 2% target midpoint. Vast majority of analysts believe the first rate hike will be made during March policy meeting, while for a whole 2014 they expect the RBNZ to push the key refinancing rate up to 3%. In this case, New Zealand will be the first developed nation to begin raising interest rate as the economy gains pace and housing boom is leading to higher price pressure.
The RBNZ currently projects the 3% growth in 2014. Additionally, they have raised the growth outlook for the year through March 2015, expecting growth to accelerate to 2.8% from previous projection of 2.3%, on the back of stronger construction and higher property values.
© Dukascopy Bank SA