"If any more evidence was needed that the economy is now in recovery mode, this is it. In fact, people are the most upbeat about their finances that they have been in six years, and economic optimists now outnumber pessimists by the widest margin since December 2004."
- Felix Delbrück, senior economist at Westpac
According to Dukascopy Currency Index the New Zealand Dollar advanced 4.70% versus the basket of other major currencies during the last 130 days. The NZD/USD currency pair has moved back to 0.8166 amid Fed tapering, while AUD/NZD was one of the most bearish pairs due to fears the RBA's easing cycle is not over, while the RBNZ is expected to start raising rates in the coming months. The pair reached this year's low of 1.0717 on December 18 and bounced back. However, future changes in RBNZ's monetary policy are suggesting the pair will dip even lower.
During the last policy meeting the RBNZ signaled 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%. The economy posted a 1.4% growth in the third quarter– the fastest pace in four years. Moreover, inflation ticked up to 1.4% over the same period. The central bank has lowered its inflation forecast, saying it will stay at 1.5% next year, affected by a stronger exchange rate. The last but not least is a stable improvement in the labour market, as employment rose by 1.2% in the third quarter, from a 0.4% gain the previous three months. Therefore, everything is currently speaking in favour of stronger kiwi next year.
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