Warning about AU Overoptimism Keeps AUD/NZD Exchange Rate Tight
The Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate has traded tightly on 27th February, following a warning from Credit Suisse.
The financial services company has estimated that the Reserve Bank of Australia (RBA) may be overly positive in its economic outlook, which risks damage in the future.
The RBA has recently expressed positive sentiments about future national wage growth, rising inflation and the general state of the economy going ahead.
Raining on the parade, however, Credit Suisse analysts believe that this celebration may be premature or even ‘overoptimistic’.
Looking at the RBA’s previous track record, Credit Suisse experts have stated;
‘Everyone makes mistakes. The question is whether we learn from them.
The RBA has become renowned over the years for delivering hawkish and arguably credible narratives, supported by consistent upward inflection points in its growth and inflation forecasts, virtually dismissing near-term undershoots, resulting in consistent over-prediction of real GDP growth and core CPI inflation.
[However], we think that there is evidence of erosion in the RBA’s inflation targeting credibility.
[A] net of global factors, cumulative growth and inflation downside surprises are pushing down Australian real yields and inflation expectations.
We believe that subdued inflation expectations are contributing to low wage inflation’.
The primary issue is that if the economy won’t grow as the RBA predicts in the future, then Australia could be in for a more difficult path of economic growth moving ahead.
New Zealand Dollar to Australian Dollar Losses Caused by Trade Surplus Shrinkage
On the other side of the pairing, the New Zealand Dollar (NZD) has recently been weakened by the trade balance reading for January.
As predicted, the surplus reading for December has fallen into the contraction range.
The drop from NZ$596m to NZ-566m wasn’t as bad a result as expected, which has prevented an outright NZD/AUD exchange rate crash.
This was the largest trade deficit for January since 2007, which has understandably left NZD traders in a state of alarm.
The national trade balance reading is typically volatile, so there is no ruling out an NZD-boosting recovery for March’s reading covering trade in February.
Australian Dollar to New Zealand Dollar Exchange Rate Forecast: AUD/NZD Decline possible on Manufacturing Stats
Looking ahead, the Australian Dollar could slip against the New Zealand Dollar on 28th February when the AIG manufacturing index result is announced.
Covering manufacturing sector activity in February, this is predicted to show a decline from 58.7 points to 57 during the month.
The next notable data out of New Zealand will be the ANZ business confidence reading for January, which will come on 28th February.
The previous -37.8 point index reading is predicted to improve to -30.4 points, which could raise confidence among NZD traders and trigger a New Zealand Dollar exchange rate rise.