-Felix Delbruck, Westpac senior economist
The New Zealand Dollar continued its appreciation against other major currencies, as brighter economic outlook outweighed gloomy news from Chinese and U.S. manufacturing sectors. While 74% of Dukascopy traders are holding short positions on the pair, strong fundamental will be pushing the kiwi higher, with more rate hikes from the RBNZ on the horizon.
While this month the RBNZ began its first concreted increase of the key refinancing rate for ten years, the nation's households and companies will bear up under a hawkish monetary policy. It is known, that any monetary policy operates with a lag, any tightening of the monetary policy is usually felt quite quickly. It is projected that after 6 months rate hikes will result in materially higher fixed rate on mortgage securities. Therefore, hawkish monetary policy can have a muted impact on consumer confidence, which already stands at a nine-year high. Nonetheless, strong economic momentum is projected to continue, hence, there will be a need for more aggressive tightening cycle. With both consumer and business confidence running rampant, and broadening economic improvement, inflationary pressure is projected to rise further, adding more pressure on the central bank to make it monetary policy more appropriate, hence, another rate hike can be expected already in April. At the same time, consumers switch to deals with fixed income, and they can come up to roll through 2014.
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