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China hikes interest rates by 25pts

Written by Sam Coxhead on February 9th, 2011.      0 comments

8:30 AM (NZT) The offshore session proved to be interesting with the Chinese making a surprise 25pt hike in their bench mark interest rates. This is a further attempt to cool growth and therefore inflationary pressure in their economy. The AUD came under immediate pressure and was sold against all currencies.  Due to the highly correlated nature of the Australian export/mining industry to growth in China, the AUD is seen as the barometer for Asian growth.
This is something to keep in mind through 2011 as we see how the inflation issue plays out China and wider Asia. If we end up with an inflation induced correction in Asian property markets. There will be a large impact their growth profile, and the AUD will be aggressively sold over the short term. With the makeup of New Zealand’s exports mainly being soft commodities the immediate impact would be less dramatic, and this could lead to a sharp increase in the value of the NZD over the AUD. Whilst the likelihood remains small at this stage, this risk should be considered.
Another interesting point of note are comments by two US Federal Reserve officials with regards to the pickup in the US economic data. It seems increasingly unlikely that there will be further Quantitative Easing programs once the second round finishes in June. References to inflation “bottoming out” in the US are starting to gain momentum and should we see the decision making Chairman Bernanke start to make similar comments, momentum for the USD would be to the upside in the short term. The interest rate market has already started to see higher rates with the benchmark 10 year Treasury Note yields consolidating through strong December set resistance at 3.60%.
    Last 24 hours trade
  Current level Low High
NZD/USD 0.7755 0.7697 0.7787
AUD/USD 1.0158 1.0115 1.0190
NZD/AUD 0.7635 0.7587 0.7660
AUD/NZD 1.3098 1.3054 1.3180
NZD/GBP 0.4825 0.4779 0.484
NZD/EUR 0.5685 0.5663 0.5709
NZD/JPY 63.72 63.35 63.91
NZD/CAD 0.7722 0.7628 0.7739