BNZ Weekly Overview July 16 2009

Welcome to the July 16 2009 issue of the BNZ Weekly Overview.

This week we saw the NZ dollar trade briefly below US 62 cents. But it is now back just below 65 cents following a strong rally in the US sharemarket overnight and jump by investors into risky assets like the NZD. A retracement to settle back below 60 cents still seems a forlorn hope for NZ exporters.

The improvement in risk sentiment overnight has pushed some wholesale interest rates to four week highs, but the start of a new jump up has not yet happened and although rises will eventually come they are likely to be initially gradual. The fall in inflation announced this morning to 1.9% from 4% last year may help restrain interest rates in the short term.

However, while borrowers are likely to continue to favor floating and short-term fixed rates they should be aware of rising fixed rates which in around a year’s time will be joined by floating rates. The risk further out is rate rises outpace current borrower expectations/hopes and this should be kept in mind especially a year from now when confidence levels about employment, housing, and ability to handle rising debt will all be stronger.

July 16 2009 issue of the BNZ Weekly Overview (pdf)

ENDS

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