New Zealand Dollar to Increase Weekly Due to Reserve Bank's Interest Rate Hike

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By Reissa Su | March 14, 2014 6:04 PM EST

The New Zealand dollar is expected to have a weekly gain of 0.9 per cent following the interest rate hike of the Reserve Bank. The Kiwi dollar rose to 85.39 U.S. cents as on March 14 as of 5pm in Wellington from a previous close of 84.55 cents.  

REUTERS
A picture of Reserve Bank of New Zealand dollar notes. September 3, 2012.

The Kiwi dollar rose to an 11-month high at 86.06 cents before trading at 85.23 cents by 8am on March 14. According to a BusinessDesk survey of 11 analysts, the Kiwi dollar is predicted to trade between 82.75 and 86.35 U.S. cents by the end of the week.

After the Reserve Bank of New Zealand (RBNZ) announced its cash rate hike, the New Zealand dollar went above the 85 U.S. cents mark and traded for 94.8 Australian cents.

The Reserve Bank of New Zealand has increased its interest rate to 2.75 per cent which made New Zealand the first developed nation to implement a rate hike. Australia may follow its footsteps since the country's surge in jobs may signal its Reserve Bank to lift rates.

New Zealand rate hike buoyed by trade

The RBNZ raised interest rates before the release of Australia's jobs data which showed significant growth in two years. In February, 47000 new jobs were created and suggested that employment data is finally catching up with the rest of the economy.

New Zealand moves further ahead of Australia due to a boom in terms-of-trade and in-demand milk exports. The country's biggest exporters of dairy are China and India. New Zealand's economy is expected to have significant gains due to big changes in China which will have a big impact to the island nation's future. New Zealand continues to enjoy a strong import growth for goods consumed by the Chinese middle class with a stronger-than-expected rise of 10.1 per cent in February. New Zealand dairy exports continue to show positive growth in China but the same cannot be said for Australian mineral commodity exports.

Since China is New Zealand's biggest importer, the Kiwi economy will stand to benefit from the Chinese government's GDP growth strategy. China relies on the growth of the middle class since data indicates millions are transferring to urban centres and moving away from rural lifestyles.

RZBNZ governor Graeme Wheeler said increasing the rate is necessary to maintain the average inflation close to the 2 per cent target.

Mr Wheeler said the Reserve Bank is ensuring that New Zealand's economic expansion can be sustained. The reserve bank's growth forecast has been adjusted to 3 per cent from 2.8 per cent for the rest of the year. New Zealand has gained $37.79 billion due to rebuilding activities in Christchurch.

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(Photo: REUTERS / )
A picture of Reserve Bank of New Zealand dollar notes. September 3, 2012.
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