"With the ... economy appearing to be on a firmer trajectory than the (Reserve) Bank has assumed, this will translate into upward pressures on core inflation. The corollary to moving earlier is that the Bank will have to do less tightening later on, that would mitigate the New Zealand dollar potential to overshoot."
- Mark Smith, ANZ Bank senior economist
Last year the Reserve Bank of New Zealand promised to pull the trigger in the first half of 2014 and start raising interest rates, becoming the first developed country to do so. This pledge pushed the kiwi higher and heated up speculations New Zealand currency will be one the best performers this year. While analysts are making their bets on whether Graeme Wheeler and his team will revise the key refinancing rate on January 29, the latest inflation report increases opportunity of the upcoming rate hike.
On Tuesday Statistics New Zealand said consumer prices inched higher 1.6% in the final quarter of 2013, accelerating at the fastest pace since early 2012, beating analysts' estimations for a 1.5% gain and moving higher from third quarter's reading of 1.4%. On a monthly basis inflation surpassed the consensus forecast as well. The main upward pressure came from a leap in airfares, while a hike in dairy prices and housing costs pushed consumer prices as well. At the same time, vegetable prices turned lower 20%, while petrol prices fell 3.5%.
On the back of positive data, the kiwi jumped to 0.8337 against the American counterpart, while AUD/NZD approached a historic low and reached 1.0571. It seems, that kiwi's appreciation will not be short-lived, taking into account stronger-than-expected fundamental data from New Zealand.
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