New Zealand Dollar To Outperform Australian Dollar In 2014; Reserve Bank To Raise Interest Rates

The New Zealand dollar is on its way to surpass the Australian dollar for the first time in 40 years, according to HSBC Bank Australia.

New Zealand's economic boom could drive the currency to new heights. HSBC considers the rebuilding of earthquake-damaged Christchurch as one of the driving forces of New Zealand's economy. The bank cited how the last decade's resources boom spurred the Australian economy.

In a report, HSBC Bank Australia's Adam Richardson and Paul Bioxham said New Zealand is on track to have a strong economy in 2014 with the country predicted to outperform all other OECD economies, except Mexico, Israel and Chile.

HSBC has predicted New Zealand's GDP to grow 3.4 percent in 2014 from 2.8 percent in 2013. The New Zealand dollar is expected to trade against the U.S. dollar at 87 cents before 2014 ends. The current exchange rate is 82.99 U.S. cents as of Jan. 13.

The Australian dollar gained against the U.S. dollar at 90.03 U.S. cents, a slight increase from last Jan. 10 rate of 89.03 cents.

The HSBC report suggested the New Zealand dollar will outperform the Australian dollar for the first time in four decades.

According to the Reserve Bank of New Zealand, the reconstruction in Canterbury is estimated at NZ$40 billion in total. The amount is equivalent to 20 percent of the country's annual GDP. Based on the reconstruction figures, HSBC economists said the scale of activity is similar to Australia's resource investment boom which had a great impact in the country's economy.

Aside from reconstruction, economists have mentioned New Zealand's dairy industry as a driving force of growth. China is the country's biggest importer of milk products. Economists also expect the housing boom to continue in New Zealand.

Despite the positive economic outlook, HSBC foresees the Reserve Bank of New Zealand to raise interest rates to stop inflation since the economy is operating almost to its capacity. The current interest rate is 2.5 percent but this may increase to 3.5 percent by end of 2014.

With New Zealand's booming commodity prices, business confidence is at its highest in 20 years. New Zealand is tagged as the one of the world's fastest growing economies, beating Australia and the U.S.

According to Finance Minister Bill English, the latest statistics revealed that gross domestic product (GDP) growth of New Zealand was 3.5 percent in September compared to 2.3 percent of Australia's GDP. Economic growth in the U.S. in the same period was 1.8 percent, Britain with 1.5 percent, Canada with 1.9 percent and Japan with 2.4 percent.