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AUD/NZD Exchange Rate Retreats Following Gloomy Retail Data

Retail Sales

Contraction in Retail Activity Weighs on AUD/NZD

The Australian Dollar New Zealand Dollar (AUD/NZD) exchange rate tumbled during the Asian session as investors reacted to the latest Australian Services PMI.

AUD/NZD slipped around 0.22% or almost half a cent from a one-month high struck just ahead of the PMI release.

Australian Dollar (AUD) Weakened by Poor Retail Activity

The Australian Dollar plummeted on Thursday as investors digested the latest domestic services PMI.

According to figures published by the Australian Industry Group (Ai Group) the services index ticked slightly higher in December, rising from 51.7 to 52 as expected and supported by a healthy reading from the hospitality and service sectors.

However despite activity rising in some sectors analysts remain concerned about the continued contraction in retail activity, which the index revealed struck just 44.5 last month, placing it well below the 50 point mark that separates growth and contraction and causing investors to sour on AUD/NZD.

A note from the Ai Group read;

‘Respondents suggest consumers might be more willing to spend their discretionary summer budget on services and experiences. Retail businesses [reported a] lack of consumer confidence and a cautious attitude to discretionary spending due to cost of living pressures.’

While economists are a little more upbeat in their outlook for 2018, the poor sales figures are likely to continue to weigh on the Australian Dollar if they continue to hold well below average over the coming months.

New Zealand Dollar (NZD) Bolstered by USD Weakness

At the same time the New Zealand Dollar was supported by a slight dip in the US Dollar (USD) following the release of the latest FOMC minutes.

While the minutes were relatively in line with expectations, confirming the Federal Reserve’s intentions to raise US interest rates multiple times in 2018, they also revealed that some uncertainties remain.

The subsequent fluctuation in USD saw investors shy away from the currency, while increasing demand for commodity-correlated currencies, like the New Zealand Dollar.

AUD/NZD Forecast: Australian Trade Surplus to Rise?

Looking ahead the AUD/NZD exchange rate may rally on Friday with the release of Australia’s latest trade balance.

Economists forecast that the nation’s trade surplus will have climbed from AU$0.1bn to AU$0.55bn in November, helping to reverse the sharp narrowing in trade in October.

Meanwhile a lull in domestic data may render the New Zealand Dollar a little directionless for the remainder of the week, with any movement likely to be driven by external factors.