"New Zealand won't always be buoyed by the Canterbury rebuild and Australia won't always be so slow"
-Dominick Stephens from Westpac
Investors are preparing for more rate hikes from the RBNZ in the coming months, and the NZD/USD currency pair is expected to retest historically highest levels once again. The economy is benefitting from the rebuild in Canterbury, while rising diary prices and booming housing market are all supporting rapid growth. But what will happen with the economy in one of two years?
According to Westpac economists, the RBNZ should not be afraid of extremely high price pressure. The economy benefited from strong immigration over the last years, with the inflow of new immigrants standing at a 10-year high. In 2013, more than 36,000 people were added to the New Zealand population. In recent years, more people migrated to New Zealand, while Australia's economy slowed. However, it was likely a temporary state of affairs. Furthermore, Canterbury will be rebuilt sooner or later, also leaving the economy without any additional boost. The central bank was concerned that immigration will add pressure on the housing market, which will, as a result, add pressure on the inflation rate and will require more interest rate hikes. Economists believe that house price inflation will hover around 5.5% during this year, just 2% lower the level the Reserve Bank was worried about.
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