Sharechat Logo

NZ dollar gains as Wheeler signals end to stimulus as housing heat spreads

Thursday 25th July 2013

Text too small?

The New Zealand dollar gained after the Reserve Bank said it will need to remove monetary stimulus as heat in the housing and construction sector spills over into the broader economy and stokes inflation.

The kiwi dollar climbed to 79.75 US cents after governor Graeme Wheeler's statement, from 79.30 cents immediately before. The trade-weighted index rose to 75.51 from 75.17 and the kiwi advanced to 86.91 Australian cents from 86.52 cents.

"Growth in the New Zealand economy is picking up and, although uneven, is becoming more widespread across sectors," Wheeler said in today's statement. The removal of monetary stimulus "will likely be needed in the future," a change from the wording of the June monetary policy statement, when he only said the official cash rate was expected to be unchanged through the end of the year.

"That's more hawkish than just saying they're on hold," said Robin Clements, economist at UBS New Zealand. "Some would argue, like myself, that data already is pretty hot. The only thing that's not hot is inflation."

Wheeler also watered down his view of the kiwi dollar, which has declined since the June MPS.

"Despite having fallen on a trade-weighted basis since May 2013, the New Zealand dollar remains high and continues to be a headwind for the tradables sector, restricting export earnings and encouraging demand for imports," he said.

That's a softer view than last month, when he explicitly said the kiwi was over-valued.

The kiwi dollar averaged 76.55 in the second quarter on a trade-weighted basis, below the Reserve Bank's projected 77.50.

Wheeler said inflation is expected to trend upwards towards the mid-point of the 1 percent to 3 percent target band as growth accelerates over the coming year. Inflation was just 0.2 percent in the second quarter, pushing annual inflation down to a 14-year low of 0.7 percent.

Traders have increased bets the central bank will hike the official cash rate from a record low 2.5 percent in the next 12 months after Wheeler kept the rate at a record low today as expected. They see 54 basis points of increases, based on the Overnight Interest Swap curve, up from the 39 basis points they were expecting previously.

BusinessDesk.co.nz

  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comment:
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

Transpower sees no risk to credit metrics from incentive change
NZ dollar rises, an outlier amid rising Gulf tensions
Craigmore spends $32M to expand Kerikeri kiwifruit crop by 'more than a third'
CentrePort eyes further hub expansion
South Port beats guidance, earnings in line with 2018 record
Plexure sees revenue growth from White Castle deal
22nd July 2019 Morning Report
NZ dollar treading water as markets focus on Iran
MARKET CLOSE: NZ shares extend gain as passive funds bolster prices; Tourism Holdings climbs
NZ dollar headed for 1.3% weekly gain on expectations of a Fed rate cut

IRG See IRG research reports