In the midst of loose monetary trends in developed countries' central banks, Reserve Bank of New Zealand (RBNZ) set to lift interest rate instead. Since last December, many have quoted RBNZ intention to finish 2014 with higher interest rates than the last three years. New Zealand's interest rates, which commonly called Official Cash Rate (OCR), is going to be upped in order to restrain the pace of inflation rate in the country.

In the midst of loose monetary trends in developed countries' central banks, Reserve Bank of New Zealand (RBNZ) set to lift interest rate instead. Since last December, many have quoted RBNZ intention to finish 2014 with higher interest rates than the last three years. New Zealand's interest rates, which commonly called Official Cash Rate (OCR), is going to be upped in order to restrain the pace of inflation rate in the country.
determinantsInflation In New Zealand
The relatively high inflation in New Zealand is particularly driven by prices of property and dairy products. Those are mainly caused by rebuilding efforts post Cristchurch Eartquake in February 2011. At the time, Christchurch, the second biggest city in NZ, suffered a disastrous quake that resulted in 185 deaths and total cost to insurers of rebuilding estimated as much as 40 billion NZD. On top of that, several aftershocks and recent floods have made rebuilding efforts became more challenging and expensive. Property prices around Christchurch have skyrocketed due to high demand of residency.
christchurch
In the aftermath of Christchurch earthquake, RBNZ cut interest rates to the low level of 2.5%. But now, three years later, they are under pressures to bump it up as prices continue to go up, as shown by rising inflation. Inflation in the last quarter of 2013 was in 1.6%, and is expected to grow again this quarter. Last month, Governor of RBNZ, Graeme Wheeler, held OCR steady on 2.5% while asserted that RBNZ will adjust interest rates in the near future in relation with rising inflationary pressures.

However, the expectation was not only based on rising inflation, but also the fact that New Zealand economy is on the up. During the last quarter, they recorded a jump on GDP, narrowed trade deficit, and plummeted unemployment. GDP is also expected to continue creeping up along with lower unemployment and increased productivity. New Zealand's impressive economic outlook is a rare gem in the current world, ascertain it to be a support for NZD appreciation this year.

Determinants of NZD
NZD movements in forex market heavily influenced by GDP, inflation, and interest rates. Additionally, although NZ has similar tie with China as Australia, but Chinese economic pressures only has low-to-mid impact on NZD. These factors have kept NZD/USD on the bullish since the beginning of the year. The bull could get stronger if in the next interest rate decision at March 13th, RBNZ resolved to increase OCR.

Fifteen economist surveyed by Bloomberg predicted that RBNZ will raise interest rates by 25 basis points, or turn it into 2.75%. Darren Gibbs from Deutsche Bank expected the hike to be followed done again in April, June, and possibly July. Reuters survey also estimated similar scenario, with expectation interest rates will be at 3.5% by the end of 2014.

Latest issues such as China credit crunch and US stimulus cuts will continue to influence NZD movements. Last Friday, NZD/USD nosedived after a better-than-expected US NFP. Nevertheless, if RBNZ actually raise OCR, then NZD will once again rule the bulls. Contrarily, if they disappoint market players' expectation, we could predict a hard fall for NZD.

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