Thursday, May 06, 2010

New Zealand Interest Rate Hike Imminent?

The latest unemployment report in New Zealand showed a big drop in the unemployment rate during the first quarter, from 7.1% to 6.0%.

As a result, New Zealand might soon as fourth advanced economy (after Australia, Israel and Norway), soon start raising short-term interest rates, currently at 2.5%. If that happens, the attractiveness of the New Zealand dollar as a target currency in carry trade will again increase.

The seemingly ever escalating Southern European debt panic might derail this, but probably not since New Zealand is very far away from Europe (It's on the other side of the planet) and has therefore stronger economic ties to Australia, America and Asia than with Europe.

Furthermore, the biggest European economy, Germany, shows increasing signs of booming despite the problems in Southern Europe, with manufacturing orders up 5% compared to the previous month, up 10.4% compared to 3 months earlier and 30% compared to 12 months earlier.