The earthquake which erupted in Christchurch three years ago killed 185 people and destroyed thousands of buildings. The catastrophe caused the central bank to cut the cash rate to a record-low 2.5 percent in the aftermath as New Zealand struggled to rebuild the country’s second largest city.
Three years on, the rebuilding efforts have fueld a construction boom, causing both housing costs and inflation to rise.
Reserve Bank of New Zealand Governor Graeme Wheeler is set to become the first central banker of a major developed economy to shift away from the current era of record-low borrowing costs. According to all 15 economists surveyed by Bloomberg, he will raise the benchmark rate by 25 basis points on 13th March. The median estimate is for a rate of 3.5 percent by the end of the year.
As the NZ$40 billion Christchurch rebuilding project gathers pace, there are signs that rising construction costs are starting to spill over into the rest of the country, Wheeler said in a speech in the South Island city on 31st January, when he also reiterated he’s likely to increase rates “soon.”
Besides Christchurch, house prices in Auckland, the biggest city, are also booming. The worrying rise caused Wheeler to introduce mortgage restrictions last year to try to curb demand.
Inflation levels are also higher than expected. Consumer prices rose 1.6 percent in the fourth quarter from a year earlier and is set to accelerate to 2.1 percent by the end of this year, exceeding the midpoint of the 1 percent-to-3 percent range that the central bank is targeting.
Economic growth may climb to 3.5 percent this year, the Reserve Bank of New Zealand (RBNZ) projected in January. By contrast, the Reserve Bank of Australia last week kept its benchmark at 2.5 percent and reiterated it sees a period of steady rates as likely. Central bankers in Canada, the U.K. and Europe have held borrowing costs at record lows.
The prospect of higher rates in New Zealand is putting the US dollar under pressure. This year, the kiwi has already gained 3.3 percent against its US counterpart - the best performer among 16 major currencies tracked by Bloomberg.
In the US, non-farm payrolls (NFP) expanded by 175,000 during the month of February when figures were announced last Friday. The consensus estimate had been for an increase of 150,000. Unemployment reached a rate of 6.7% from 6.6% the month before. Hiring in the private sector increased by 162,000, led by a 140,000 gain in services jobs, while employment in the public sector bounced back by 13,000.
China’s exports dropped 18.1 percent from a year earlier, the most since the global financial crisis, trailing the median estimate for a 7.5 percent increase in a Bloomberg News survey of 45 economists. As the nation chases a 7.5 percent annual growth target, set at last week’s meeting of the National People’s Congress, officials need to contain stresses in the financial system from the credit boom that began with stimulus measures in 2008.
Imports rose 10.1 percent, more than projected, leaving a trade deficit of USD23 billion, the biggest in two years.
The yuan fell last month amid speculation the central bank was engineering a decline in preparation for widening the currency’s trading band against the dollar. The People’s Bank of China last month included an “orderly” broadening of the band among its 2014 policy goals.
New Zealand: Offcial Cash Rate. Thursday, 13th March, 4am.
I expect figures to rise to 2.75% (previous figure was 2.5%).
USA: Retail Sales m/m. Thursday, 13th March, 8.30pm.
I expect figures to come in at 0.2% (previous figure was -0.4%).
Long NZD/USD at 0.8445
On the H1 chart, NZD/USD has risen over 240 pips in the last 2 weeks, rising to a 5 month high of 0.8522 before last week’s close.
With the possible rate hike by the central bank this week, I expect the NZD/USD to head upwards and we will go long once prices bounce off the uptrend line.
Entry price is taken at 0.8445 and a stop loss of 50 pips is placed just below the previous low. We will have two targets on this trade, exiting the first position at 0.8495 and the second one at 0.8545.
Entry Price = 0.8445
Stop Loss = 0.8395
1st Profit = 0.8495
2nd Profit = 0.8545