The Australian Dollar has traded in a narrow range against the New Zealand Dollar today, failing to break free of a current stalemate.
This tight trading follows a rise in iron ore prices, the positive effect of which has been cancelled by an alarming interest rate forecast.
Australian Dollar Traders Unsettled by Hawkish Interest Rate Prediction
The latest Australian Dollar fluctuations have seen the best AUD NZD exchange rate in a week, but the rate of 1.0445 is still down from June’s high of 1.0546.
Positive Australian news today has come from the world of commodities, with the price of iron ore rising significantly. On Tuesday, the cost of the mining resource jumped by 5.2%, the largest one-day gain in over four months.
Commenting on a possible reason for the rise was commodities expert Zou Mingdong;
‘High steel margins after the [Chinese] government’s effort to eliminate low-grade steel are enticing mills to produce more steel, which increases the need for iron ore’.
Iron ore is a key component in the steelmaking process and China is Australia’s biggest trade partner, which explains the recent price jump.
Less supportive for the AUD, however, has been a forecast from a former Reserve Bank of Australia (RBA) official.
Commenting on future RBA interest rate decisions, John Edwards has stated:
‘Something like eight quarter percentage point tightenings over 2018 and 2019 are distinctly possible, if the RBA’s economic forecasts prove correct’.
Eight interest rate hikes over the next two years would improve circumstances for savers in Australia, but could also hammer those repaying mortgages on variable rates. Acknowledging the correlation, Edwards said;
‘The bigger the household debt, the more impact a quarter percentage point increase in the [interest] rate will have on household spending. It is certainly possible that high household home mortgage debt will crimp consumer spending if the policy rate returned to what was once considered a relatively low long-term rate’.
New Zealand Dollar Dips after RBNZ Offers Cautious Outlook
Central bank news has also influenced the New Zealand Dollar today, with the NZD AUD exchange rate shedding gains on Reserve Bank of New Zealand (RBNZ) announcements.
The RBNZ has recently made its Statement of Intent for 2017-2020. While broadly consistent growth is forecast, the RBNZ has also highlighted significant uncertainties about the housing market.
With the nation facing a shortage of houses and construction costs soaring, the RBNZ has been uncertain about how to proceed. While interest rates are forecast to remain unchanged for the near-term, raising them in the future could endanger those struggling with high debts.
AUD NZD Forecast: Sales Stats and Confidence Scores to Provide Last Weekly Movement
The next Australian Dollar influencer is likely to be Friday’s private sector credit stats for May.
For New Zealand, Thursday’s ANZ business confidence score is the next major announcement. From April to May, confidence rose, so another increase in June could be enough to push the New Zealand Dollar up.
Recent Interbank AUD NZD Exchange Rates
At the time of writing, the Australian Dollar to New Zealand Dollar (AUD NZD) exchange rate was trading at 1.0443 and the New Zealand Dollar to Australian Dollar (NZD AUD) exchange rate was trading at 0.9571.