After falling to a fortnight low during Wednesday’s Asian session, the Australian Dollar to New Zealand Dollar exchange rate recovered slightly during the European session.
AUD NZD remains well below the week’s opening level of 1.1171m but has recovered to above 1.11 again after hitting a low of 1.1084.
Australian Dollar (AUD) Recovery Limited by Poor Manufacturing Stats
Investors have had little reason to buy the Australian Dollar in recent sessions, amid a lack of strong domestic data as well as the recent cautious tone of the Reserve Bank of Australia (RBA).
As a result, the ‘Aussie’ has been largely weak since Monday.
However, during Wednesday’s European session the Australian Dollar recovered from its worst levels against many major rivals, including the New Zealand Dollar.
This was despite the morning’s Australian manufacturing PMI for October from AiG.
The manufacturing index slipped from 54.2 to 51.1 in October. The latest home sales results were disappointing too, coming in at -6.1%.
Investors bought the Australian Dollar up from its lows as they anticipated the latest decisions from the Federal Reserve, which holds its November policy decision during Wednesday’s American session.
New Zealand Dollar (NZD) Supported by Domestic Job Market Data
The recently weak New Zealand Dollar pushed AUD NZD down to its worst levels in weeks following the publication of New Zealand’s Q3 job market results on Wednesday, which came in well above expectations.
New Zealand’s participation rate unexpectedly surged from 70% to 71.1%, well above the forecast 70.2%.
Despite the impressive participation rate rise, the unemployment rate improved too from 4.8% to 4.6%, beating the expected 4.7%.
New Zealand’s latest wage growth results were also solid. Annual wage growth came in at 1.9%, the highest figure in the print since 2008.
Many investors took this as an opportunity to buy back the ‘Kiwi’. The currency had been oversold since New Zealand’s Labour-NZ First coalition government came into power last month.
According to Sue Trinh, head of Asia FX strategy from RBC Capital Markets;
‘The ‘Kiwi’ was oversold on fiscal uncertainty and about what the Labour-led government would be enacting, so the market was short, and prone to squeezes’
Lasting uncertainty about the new government limited the ‘Kiwi’s recovery though, making it easier for AUD NZD to recover from its lows on Wednesday.
AUD NZD Forecast: Central Bank News to Drive Movement
Over the next week, key developments from central banks are all likely to influence the Australian Dollar to New Zealand Dollar exchange rate.
Domestic data is unlikely to alter AUD NZD direction majorly in the coming days, but the ‘Aussie’ could still be slightly influenced by September’s Australian trade balance results on Thursday, as well as September’s Australian retail sales report and the October services PMI on Friday.
Developments from the Federal Reserve are more likely to influence AUD NZD trade.
If investors are impressed with the Federal Reserve’s November policy decision and US President Trump’s pick for Fed Chair, the Australian Dollar could weaken as the ‘Aussie’ has been more influenced by risk-sentiment recently, compared to the more politically-correlated movement of the ‘Kiwi’.
Next week, both the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ) will hold November policy decisions.
As a result, AUD NZD trade is likely to be influenced heavily by the tones that policymakers take next week.
AUD NZD Interbank Rate
At the time of writing this article, the Australian Dollar to New Zealand Dollar exchange rate trended in the region of 1.1136. The New Zealand Dollar to Australian Dollar exchange rate traded at around 0.8975.