The Australian Dollar New Zealand Dollar exchange rate fluctuated last week but towards the end of the week dropped off as iron ore price futures plunged and damaged the appeal of the commodity-correlated ‘Aussie’. By the end of the week, AUD NZD trended at around 1.04.
Australian Dollar (AUD) Undermined as Iron Ore Hits December Low
Demand for risk-correlated currencies has been low since the Federal Reserve’s December policy decision, following which policymakers hinted that there may be as many as three US rate hikes in 2017.
However, the Australian Dollar in particular has suffered most from this risk-off movement as the market for iron ore, Australia’s biggest commodity export, has performed poorly over the last week.
Demand for the commodity took a huge plummet as a thick smog descended in north China, hindering major construction work. As a result, iron ore futures and prices plunged to their worst levels since November, dampening demand for the ‘Aussie’.
Despite this, analysts predict that 2016 will have been the best year on record for Chinese iron ore futures.
New Zealand Dollar (NZD) Benefits from AUD Weakness
While the New Zealand Dollar faced the same risk-off environment as AUD trade last week, the ‘Kiwi’ performed better due to supportive ecostats and comparatively better commodity performance.
Prices of dairy, New Zealand’s biggest export, slipped -0.5% during 2016’s final Global Dairy Trade (GDT) auction. Despite this modest drop, it was a better performance than the week’s iron ore price falls leaving the New Zealand Dollar more appealing.
Thursday’s Asian session saw the publication of New Zealand’s Q3 Gross Domestic Product (GDP) results. While they only came in at 3.5% year-on-year, the quarter-on-quarter figure came in at a much better than expected 1.1%.
Australian Dollar New Zealand Dollar Exchange Rate Forecast to Fall Further unless Iron Ore Improves
Trade in the coming week is likely to be even quieter than last week’s movement.
With both Australian and New Zealand markets closed until Wednesday due to observing public holidays earlier in the week, Australian Dollar New Zealand Dollar exchange rate movement will be especially light in the first half of the week.
The only relevant data due for publication next week is Friday’s Australian private sector credit report from November, which is unlikely to inspire much movement in the ‘Aussie’.
Instead, ongoing shifts in risk-sentiment and commodity prices will be the biggest influences in AUD NZD trade as 2016 draws to an end.
If smog lifts and construction in north China is able to resume, iron ore futures will likely begin to improve again which will support the Australian Dollar and could allow it to recover somewhat.
However, if iron ore price performance fails to improve, the New Zealand Dollar will remain the more appealing risk currency of the two and the pair could continue to edge lower.
AUD NZD Interbank Rates
At the time of writing, the Australian Dollar New Zealand Dollar exchange rate trended in the region of 1.04, while the New Zealand Dollar Australian Dollar exchange rate traded at around 0.95.