Weak sentiment kept the Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate within opening levels yesterday. Poor US data gave both currencies a minor boost, but domestic sentiment was soft, with the Australian budget/elections and the New Zealand central bank interest rate decision cooling appetite.
The Australian Dollar was unable to gain much ground against its antipodean cousin during Tuesday’s European session. Both currencies were in a generally weakened state yesterday, despite gaining support from a sliding US Dollar. The latest US data, the preliminary Durable Goods Orders figures for March, printed below-forecast, weakening the ‘Greenback’.
However, it seems that budget concerns and the threat of an impending election kept Australian Dollar sentiment muted yesterday. With the Australian government planning to announce cuts to income tax in their final budget before the election, as well as additional spending measures, the prospect of a budget surplus has been delayed until at least 2021. The target has been pushed back by two years in the last twelve months.
Even then, the predictions may be unrealistic. According to Chris Richardson, analyst with Deloitte Access Economics:
‘In terms of the official figures on budget night – which will assume the Senate rolls over, the states smile, and China lives happily ever after – we may have only one further year’s delay in the path back to surplus. But on existing policies, you just won’t ever get there.’
Three forthcoming central bank meetings kept appetite for the New Zealand Dollar weak yesterday. Tomorrow will see interest rate decisions from the Bank of Japan (BOJ), the US Federal Reserve and then the Reserve Bank of New Zealand (RBNZ).
All three of these could have an impact on the ‘Kiwi’. If the BOJ chooses to increase stimulus, the Japanese Yen (JPY) could weaken, undermining safe-haven demand and therefore making risky assets like the New Zealand Dollar more appealing. The same could happen following the Federal Reserve’s meeting.
The RBNZ is currently not forecast to cut interest rates, although it is believed it will do so again during the course of 2016. The RBNZ has already surprised markets once this year with an unexpected cut, so there is still the potential that could happen again tomorrow.
With high-impact US and Australian data due, as well as releases from New Zealand, today could potentially see significant volatility in the AUD/NZD exchange rate.
The US Consumer Confidence index for April, due out before the start of the Australasian session, could see both the ‘Aussie’ and the ‘Kiwi’ start the day in a positon of strength if it shows weakening sentiment in the States as predicted.
For New Zealand, March’s trade balance figures are expected to show that the surplus widened from NZ$339 million to NZ$401 million.
The Australian ANZ Roy Morgan Weekly Consumer Confidence Index could spark some movement in the ‘Aussie’, but the real driver will be the Consumer Price Index for the first quarter of 2016. Inflation in the first three months of the year is anticipated to have slowed from 0.4% to 0.2%, while year-on-year (YoY) inflation is expected to hold steady at 1.7%.
The Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate was trending around 1.1233 towards the end of Tuesday’s European session, while the New Zealand Dollar to Australian Dollar (NZD/AUD) exchange rate traded in the region of 0.8897.
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