Is the RBNZ Ready to Hike?

Is RBNZ Governor Wheeler shedding his dovish feathers and donning hawkish ones? Lemme give you a breakdown of the recent RBNZ statement!

The Expected

Market watchers weren’t shocked to find out that the RBNZ decided to keep monetary policy unchanged by maintaining interest rates at 2.50% in their September rate decision. As expected, RBNZ head Wheeler also made a few quips about exchange rates, as he pointed out that the Kiwi is trading at relatively high levels and that currency depreciation could be good for their exports.

With the recent developments in New Zealand’s economy and the rise in commodity prices, it was also no surprise that the RBNZ gave a relatively upbeat economic outlook. Wheeler noted that spending was picking up, spurred mostly by the ongoing recovery in the housing sector.

The Unexpected

Jaws dropped when Wheeler jumped on the forward guidance bandwagon and declared that interest rate hikes will “likely be required” next year. This was enough to get analysts buzzing about a potential RBNZ rate hike as early as March or April 2014!

Wheeler clarified that potential rate changes will depend on the performance of the housing market and construction sector, as this is expected to boost inflation and overall economic activity.

The Reaction

Not surprisingly, NZD/USD shot up at Wheeler’s announcement. NZD/USD jumped by 51 pips in the early Asian session and staged a convincing break above the .8100 major psychological handle. In fact, it’s trading near its intraday highs despite the risk aversion gripping the markets today!

NZD/USD Chart

For now, the stars seem to be lined up in favor of a bullish NZD/USD position. Remember that the comdoll has also been receiving support from China’s better-than-expected reports as well as improvements in risk appetite.

With a hawkish RBNZ having its back, it also won’t be surprising if the Kiwi also stages significant gains versus currencies whose central banks favor more easing (ex: ECB, BOJ). Of course, let’s not forget that the Kiwi is still one of the best bets for a positive carry trade among the major currencies!