Australian Dollar New Zealand Dollar (AUD/NZD) Exchange Rate Slips After Trade Deficit Surprise
November’s Australian trade balance fell far short of forecast to return to a state of deficit, leaving the Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate in a slump.
September’s trade data was also unexpectedly revised from solid surplus to a deficit of -302 million, indicating that the Australian economy is not in as strong a state as previously thought.
Naturally the Australian Dollar (AUD) trended lower across the board as a result of this disappointing data, losing notable ground against the US Dollar (USD) and New Zealand Dollar (NZD).
However, the recent surge in base metal prices and strong Chinese PMIs could soon see demand for Australian exports recover, somewhat limiting the downside bias of the AUD/NZD exchange rate.
As Simon Murray, Research Analyst at Westpac, noted:
‘Q4’s soft start largely relates to adverse price movements, including a dip in the iron ore price, which since rallied through December. Looking forward, positives remain in the LNG sector as exports lift higher with additional capacity coming on stream and prices firm, while the Asian region continues to be a solid source of demand for services exports.’
Fresh AUD/NZD Volatility Forecast on US Employment Data
Even in the absence of any supportive New Zealand data the AUD/NZD exchange rate failed to find any particular traction ahead of the weekend.
Fresh volatility could be in store for the New Zealand Dollar (NZD), though, if December’s US non-farm payrolls data betters forecast.
Continued tightening of the US labour market could encourage greater hawkishness from the Federal Reserve, to the detriment of the commodity-correlated NZD.
Even so, if the average earnings figures fail to point towards an uptick in wage growth then both the Australian Dollar and New Zealand Dollar could get a boost from softening USD exchange rates.
Either way, the AUD/NZD exchange rate is likely to see some sharp reaction to the US data tonight.
Solid Australian Construction PMI Forecast to Limit AUD Exchange Rate Downside
A rallying point could be in store for the AUD/NZD exchange rate on the back of Monday’s Australian construction PMI, though.
If the construction sector continued to expand at a solid pace at the end of 2017 confidence in the economic outlook is likely to improve.
However, even if the PMI proves bullish this is unlikely to materially impact the odds of the Reserve Bank of Australia (RBA) raising interest rates in the coming months.
Any disappointment, though, could still weigh heavily on Australian Dollar exchange rates.
Confidence in the New Zealand Dollar, meanwhile, may diminish in response to fluctuating market risk appetite.
The latest New Zealand building permits data could provoke some volatility for the AUD/NZD exchange rate in the coming week, particularly following on from the previous month’s sharp decline of -9.6%.