The AUD NZD exchange rate tumbled this morning as markets responded to a positive Reserve Bank of New Zealand (RBNZ) forecast and some disappointing Australian data prints.
NZD Exchange Rates Climb as RBNZ Dismisses Possible Risks of New Government
The RBNZ announced that it will be keeping interest rates on hold at 1.75% at its November rate meeting yesterday – exactly as markets anticipated.
What markets did not anticipate, however, was the sentiment reflected in the accompanying statement and the following morning’s press conference, with Acting Reserve Bank Governor Grant Spencer asserting that the proposed Government changes that investors had been so anxious about would have little effect on the bank’s thinking moving ahead.
Markets had grown worried that the new leadership’s proposal of curbing unemployment would prompt the bank to lower interest rates – an eventuality that would then hurt demand for the ‘Kiwi’ Dollar.
Spencer was quick to refute this idea, claiming that the move to a dual mandate would be ‘unlikely to have impact’ on the way the bank runs monetary policy.
‘But in the current situation the labour market is pretty balanced so I don’t think the dual mandate would make much difference to our policy stance’.
Beyond this, the bank also hawkishly moved its potential rate hike plan forward from September 2019 to June that year – a move markets were happy to hear about.
This news quickly propelled the New Zealand Dollar higher, with market risk perception substantially reduced.
Australian Home Loans Suffer Surprising Fall, AUD Exchange Rates Slightly Hindered
Home loans in Australia dropped below forecast in September, with both investors and owners/occupiers borrowing less.
According to the Australia Bureau of Statistics, month-on-month home loans contracted -2.3% in September, down from August’s 1.5% figure and significantly below the forecast of a 3.0% gain.
In addition, the investment lending for homes figure for September also tumbled, this time by -6.2% compared to the previous period’s upwardly revised 4.8% gain.
This news did not have a massively negative influence on the ‘Aussie’ however, with some economists arguing that a slowdown in investor borrowing will please policymakers at the Reserve Bank of Australia (RBA) because it could indicate that the housing market will cool into 2018.
Nonetheless, the AUD NZD exchange rate remained in the ‘Kiwi’s’ favour.
AUD NZD Forecast: RBA Monetary Policy Statement Ahead
The RBA is due to release its quarterly statement on monetary policy on Friday (SoMP) – an event that markets will be watching closely for any changes of sentiment.
This review could notably see the RBA cut its inflation and growth forecasts, with inflation now being below what it was at the beginning of 2017.
Elias Haddad, Strategist at Commonwealth Bank of Australia, echoed this sentiment, stating:
‘In the wake of both Q3 CPI measures undershooting RBA and market expectations there could be some modest trimming to the RBA’s near term underlying inflation forecasts in the SMP’.
This possibility is also currently encumbering the AUD NZD exchange rate and if it does come to fruition then the ‘Kiwi’ Dollar will likely retain its lead into next week.