The AUD NZD exchange rate remained in the ‘Kiwi’ Dollar’s favour on Tuesday as markets responded to upbeat comments from Reserve Bank of New Zealand (RBNZ) Governor Grant Spencer and hopes that global dairy prices will surge this week.
NZD Exchange Rate Climbs on Talk of Flexible Approach to Monetary Policy
Reserve Bank Governor Grant Spencer announced this week that the bank is looking to adopt a more flexible approach to its inflation targets as it continues to wrestle with limp consumer price pressures.
Spencer announced that various factors are ‘reducing the leverage monetary policy has over inflation’, asserting that the bank’s inflation targeting approach will likely become more flexible, with more emphasis put on output, employment and financial stability.
Beyond this, Spencer has stated that the central bank is now ‘assuming greater persistence in low global inflation’, something that will likely contribute to keeping interest rates flat.
Oddly enough, markets seemed unperturbed by this dovish soundbite, being instead appeased by the thought that the bank is ‘trying to be flexible’.
Sean Callow, Senior Currency Strategist at Westpac, shared this sentiment stating:
‘Instead it seems the Kiwi rallied on the view that relatively more weight is being attached to the stabilisation of output and employment in the short to medium term. In other words, the RBNZ gives the impression that even with a mandate to hit 2% inflation – and no RBA Fed style employment mandate – they are willing to keep missing their inflation target so long as growth is decent enough’.
RBA Leaves Rates Unchanged, Positive Forecast for 2018 – AUD NZD Fails to Capitalise
The Australian central bank (RBA) left interest rates on hold at 1.5% for the 16th consecutive month today – widely in-line with market expectations.
Whilst the bank did hold steady, comments from RBA Governor Philip Lowe proved quite positive, as he stated that while inflation remains below the 2% target, the bank continues to maintain its forecast that it will ‘pick up gradually as the economy strengthens’.
‘Forward looking indicators continue to point to solid growth in employment over the period ahead’.
Retail sales in Australia also demonstrated growth of 0.5% today, beating the forecast of 0.3%.
Combined, this news lifted the ‘Aussie’ Dollar, although this was not enough to swing things into the Australian Dollar’s favour.
AUD NZD Forecast: Global Dairy Price Auction Ahead
Markets currently expect global dairy prices to rise this week on the threat of a looming drought in New Zealand, an eventuality that might temporarily curb production.
This might prove something of a double-edged sword, however, as whilst a jump in global dairy prices will likely be greeted by markets as reason to buy into the ‘Kiwi’, an accompanying drought that limits production might be seen by many as reason not to.
For the Australian Dollar, tomorrow’s GDP figures will likely prove pertinent, with an increase from 1.8% to 3.0% forecast for the annual figure.
If this occurs then the AUD NZD exchange rate may quickly shift back into the ‘Aussie’ Dollar’s favour.