The Rise In The New Zealand Dollar Help Slow Down Inflation

Daily Forex Fundamentals | Written by ecPulse.com | Oct 27 09 08:20 GMT |

New Zealand's Prime Minister indicated that the rise in the local currency does not reflect the current economic conditions seen by the country, and since the rise in the New Zealand dollar helped slow down inflation, the central bank does not see the need to start raising rates for now. The New Zealand central bank led by Alan Pollard may not face pressures to start raising rates in the upcoming period, since inflation is under control for now especially with the appreciation of local currency against other currencies that reduces the imported inflation, since import prices become lower. The consumer price index rose by 1.3% during the third quarter of the year, therefore it remains within the comfort zone of the central bank between 1.0-3.0%. And since the interest rates in New Zealand are higher than its trading partners, the country depends on the rise of its local currency. The New Zealand dollar is expected to remain near its highest levels, especially since interest rates stabilized in the United States between 0.0-0.25% and in Japan at 0.1%. Therefore, many worldwide investments head to New Zealand in order to benefit from the higher return resulted from the interest rate, which is higher than in other countries. This increases demand on the local currency, which consequently will keep rising Although the economy will benefit from the appreciation of the local currency, this will certainly, create problems for exports, which became less competitive. The Finance Minister Bill English demanded focusing on exports to push the economy into recovery and overcome the recession, and he also criticized the exaggerated rise in the New Zealand dollar which does not reflect the real conditions in the economy. Alan Pollard stated last week that the rise in the local currency is not what prevents the central bank from raising interest rates, and that the bank's decision to maintain interest rates at their lowest level at 2.5% was to support domestic consumption and strengthen investments that could compensate for the fall in exports, thereby support the economy. Ecpulse disclaimer: The content of ecPulse.com and any page in the website contain information for investors/traders and is not a recommendation to buy or sell currencies, stocks, gold, silver & energies, nor an offer to buy or sell currencies, stocks, gold, silver & energies. The information provided reflects the writers' opinions that deemed reliable but is not guaranteed as to accuracy or completeness. ecPulse is not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trades currencies, stocks, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, stocks gold, silver &energies presented should be considered speculative with a high degree of volatility and risk