Homepage » AUD to NZD » AUD NZD Exchange Rate Slumps After Bullish RBNZ Inflation Expectations Report

AUD NZD Exchange Rate Slumps After Bullish RBNZ Inflation Expectations Report

New Zealand Dollar Exchange Rates

Even though the Australian construction PMI showed an uptick on the month this was not enough to bolster demand for the Australian Dollar on Friday.

Markets were instead discouraged by the Reserve Bank of Australia (RBA) statement on monetary policy, which reiterated worries over the domestic housing market.

While policymakers expressed some optimism over the outlook of the wider economy the central bank does not appear to be on course to return to a hawkish policy bias any time soon.

With the odds of a June interest rate hike from the Federal Reserve rising sharply investors have seen little reason to buy into the commodity-correlated ‘Aussie’ this week.

Iron ore prices continued to slump ahead of the weekend, meanwhile, as oversupply worries mounted further in the face of weakening demand.

Faith in the underlying health of the Australian economy could improve next week if the latest Westpac consumer confidence and NAB business confidence indexes prove encouraging, though.

Any signs of greater optimism may offer the ‘Aussie’ a rallying point, particularly if market risk appetite improves in the wake of the French presidential election result.

Demand for the ‘Kiwi’ picked up, on the other hand, as the Reserve Bank of New Zealand (RBNZ) two-year inflation expectation report proved encouraging.

The forecast pointed towards inflation rising at 2.17% in two years’ time, suggesting that inflationary pressure is likely to continue picking up over the coming months.

If expectations prove accurate and inflation accelerates further then the RBNZ could be prompted to return to a monetary tightening bias in the nearer term.

As Michael Gordon, Acting Chief Economist at Westpac, noted:

‘Inflation is now close to the 2% target midpoint, though partly due to some temporary factors that are likely to fade over the next year.

‘The challenge for the RBNZ now is to keep inflation on target over the medium term. The economy is growing steadily, but not at a pace that suggests the RBNZ needs to hit the brakes.’

While it seems unlikely that policymakers will act at next week’s policy meeting there could be a shift in the tone, potentially boosting the appeal of the ‘Kiwi’ further.

However, if Governor Graeme Wheeler maintains a more neutral outlook on interest rates then the Australian Dollar New Zealand Dollar exchange rate could find a fresh rallying point.

A stronger showing from April’s credit card spending figures could improve the appeal of the New Zealand Dollar, with higher levels of consumer confidence boding well for the health of the domestic economy.