NZD skyrocketed after Reserve Bank of New Zealand lifts its benchmark interest rates 0.25 basis point. This marks the second time RBNZ hikes Official Cash Rate (OCR) this year. Their hawkish insistence gives Kiwi an edge, and NZD to USD soars to 0,8633.

NZD skyrocketed after Reserve Bank of New Zealand lifts its benchmark interest rates 0.25 basis point. This marks the second time RBNZ hikes Official Cash Rate (OCR) this year. Their hawkish insistence gives Kiwi an edge, and NZD to USD soars to 0,8633.

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New Zealand Commodities And Currency Price

RBNZ have planned to increase OCR gradually since last year in order to put brakes on inflationary pressures. Therefore, rate hike depends heavily on economic condition, particularly inflation rate dynamics. According to statistical data, New Zealand annual inflation currently displays steady inflation over 1%. However, RBNZ Governor Graeme Wheeler yesterday mentioned that they are worried about high commodities prices.

Furthermore, Wheeler also indicated that inflation might rise although OCR have rose for the second time, insinuated that rate hike might happen again. How far RBNZ will hike its interest rates? According to RBNZ, it depends on inflationary pressures, including how much high exchange rates of NZD inflict lower inflation.

In short, rather than the literal number of inflation, RBNZ concerns more about inflationary pressures, including export commodities prices.


Rate Hike On June, September, And December

Along with Wheeler's speech, the public warmed to the idea of New Zealand interest rates hike. New Zealand-based Westpac forecasts another rate hike on June, September, and December, at 0.25% respectively. By the end of 2014, it is estimated that OCR will stand at 3.75%, with further increases in 2015.

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New Zealand Interest Rate And Annual Inflation Forecasts By Westpac

On another hand, Westpac forecasts annual inflation rate stays above 1% till the end of 2014 and climbs to more than 2% in 2015. If this is true, then we may assume that RBNZ rate hike has no bearing on inflationary pressures.

If interest rates mounts up, will NZD continue with its bullish tendencies? We don't think so. Although theoretically, interest rates increase will encourage currency appreciation, but there are saturation point by which gains will slow and the value could not go higher. For NZD, that point is around 0.8700, which means that in the next months kiwi most likely will bow to downward pressures. If RBNZ lifts interest again on June, September, and December, as predicted, then NZD will go above 0.8300s (January highs). But NZD bulls will be stalled around 0.8500-0.8700 area.

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