Ultimately, it is the relative rates of return between New Zealand and the rest of the world that explains the strength of the New Zealand dollar. These returns reflect developments in the economy and international demand for our products and services.
First, most household debt - mortgage and consumer debt combined - carries a fixed interest rate, which slows the adjustment of interest costs to rising rates. Second, although interest rates on some variable-rate loans will rise quickly, the adjustment for a large number of variable-rate loans could be a good deal slower.