The Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate has dropped since Tuesday, driven by poor commodity prices and reserve bank concerns, with Thursday’s Australian data denting the ‘Aussie’s defences further.
‘Aussie’ Dollar (AUD) Dented by Consumer Inflation Expectation
AUD/NZD lost ground during Thursday’s session as optimistic Australian data from earlier in the week initially slowed an ‘Aussie’ plummet.
The pair managed to hit a weekly high of 1.0916 on Tuesday despite Reserve Bank of Australia (RBA) worries as commodity prices rallied but has since fallen to trade below the week’s opening levels of 1.0784. At the time of writing, AUD/NZD was down -0.4% and trended in the region of 1.0752.
Wednesday’s Australian data was largely optimistic, with home loans contracting less-than-expected from 0.9% to -0.9% and Westpac’s consumer confidence report indicating that confidence made its biggest increase in around 6 years, from 95.1 to 103.2.
These reports muted the Australian Dollar’s losses until Thursday’s consumer inflation expectation report gave investors less reason to stick around. Slowing from April’s 3.6% to 3.2%, the May print saw the ‘Aussie’ quickly lose -50 pips and AUD/NZD’s downtrend accelerated.
New Zealand Dollar (NZD) Strengthens on Lightened RBNZ Rate Cut Bets
This week has seen the ‘Kiwi’ suffer less than some of its risky commodity-correlated peers as New Zealand data remains positive.
Tuesday saw the release of New Zealand’s card spending report, which improved from 0.5% to 1.5% month-on-month. Wednesday’s REINZ house sales report was also well up, from 8.2% to 18.4%.
Perhaps more vitally was Thursday’s performance of the manufacturing index score, which gained from 54.7 to a healthy 56.5 in April.
With New Zealand data consistently solid this week, the ‘Kiwi’ felt its strongest boost from news that the Reserve Bank of New Zealand (RBNZ) is perceived to be less likely to adjust fiscal policy at the present time.
According to Scoop, the RBNZ’s latest financial stability report caused a change of heart in ‘Kiwi’ bears;
‘The local currency has strengthened since the release of the Reserve Bank’s financial stability report yesterday, having been sold off ahead of the release on expectations there would be new measures to cool the housing market. Instead, the bank said it was “closely monitoring” developments in the housing market and could introduce loan to income restrictions.’
AUD/NZD Exchange Rate Forecast: New Zealand Q1 Retail Sales Ahead
The Australian Dollar’s chances of near-term recovery could be quite low with markets still reeling from the Reserve Bank of Australia’s (RBA) sudden interest rate cut last week and the chances of another cut in the coming months still being widely perceived as likely.
Australian data is also set to be quiet until next Tuesday, which sees the release of the RBA’s May meeting minutes. The minutes may indicate when the next key rate cut could happen.
New Zealand, on the other hand, is due to release its anticipated quarterly retail sales excluding inflation report on Friday.
If the report shows a slowing of 1.2% to 1.0% in Q1 as expected, the ‘Kiwi’ rally could slow – however its advances could continue if the figure prints above expectations.
Investors may also begin adjusting their positions on the commodity-correlated New Zealand Dollar ahead of next Tuesday’s highly anticipated May 17th dairy auction, which will see the latest changes in the price of New Zealand’s most lucrative commodity.
At the time of writing, the Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate trended in the region of 1.0752, while the New Zealand Dollar to Australian Dollar (NZD/AUD) exchange rate traded at around 0.9296.