Less Upbeat RBA Meeting Weighs on Australian Dollar New Zealand Dollar Exchange Rate
Although fears of a global trade war picked up in the wake of China’s announced tariffs on a number of US products this failed to provoke particular volatility for the Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate.
With the US Dollar (USD) falling out of favour once again the appeal of higher-yielding assets naturally improved, offering a boost to both the Australian Dollar (AUD) and New Zealand Dollar (NZD).
However, the AUD/NZD exchange rate came under pressure on Tuesday as investors reacted to the Reserve Bank of Australia’s (RBA) April policy meeting.
Even though there was no expectation for the central bank to adopt a more positive outlook on monetary policy that did not stop the Australian Dollar losing ground in the wake of the meeting.
As Bill Evans, research analyst at Westpac, noted:
‘Whereas some previous statements from the Governor could have been interpreted as mildly optimistic, there is nothing in today’s statement to fit that description. There is some uncertainty around the immediate growth outlook, while tightening financial conditions are noted. A slowdown in improving labour market conditions is observed while the outlook for consumption remains uncertain.
‘Westpac has no reason to change its current view that the overnight cash rate will remain unchanged for both 2018 and 2019.’
New Zealand Dollar Forecast to Soften on Weaker Dairy Prices
Some support could be in store for the AUD/NZD exchange rate, however, if the latest Global Dairy Trade auction data shows a fresh dip in prices.
Signs of weakness within the dairy sector could give investors reason to sell out of the New Zealand Dollar, in the short term at least.
With markets already holding a somewhat negative view of the outlook for the New Zealand economy any evidence of vulnerability within its key export sector could leave NZD exchange rates on the back foot.
On the other hand, if the ANZ consumer confidence index pushes higher on the month in March this may give the New Zealand Dollar an extra boost against its rivals.
Rising Australian Retail Sales Forecast to Support AUD/NZD Exchange Rate
As long as investors remain jittery over the prospect of a full-fledged US-China trade war the AUD/NZD exchange rate is likely to remain somewhat biased to the downside.
Even so, the mood towards the Australian Dollar could still pick up on Wednesday if February’s building approvals and retail sales figures prove encouraging.
Any indication of greater underlying confidence within the Australian economy should give AUD exchange rates a rallying point, in spite of the relatively dovishness of the RBA.
However, evidence that the domestic housing market is slowing may well leave the ‘Aussie’ on a generally softer footing.
Further escalation in trade tensions between the US and China could also weigh on the AUD/NZD exchange rate this week, with the Australian economy more exposed to the risks of a global slowdown.