The Australian Dollar to New Zealand Dollar exchange rate emerged from below levels of 1.0450 during Wednesday’s session as markets priced in the assumption that vote-counting for Australia’s general election would soon draw to a conclusion. Meanwhile, the ‘Kiwi’ floundered on poor dairy trade news.
The Australian Dollar plummeted first thing during Monday’s Asian trade as markets reacted with panic to the possibility of a ‘hung parliament’. AUD/NZD notably hit a new yearly low of 1.0376 before investors readjusted their positions, taking it above 1.0400.
At the time of writing, confidence in the ‘Aussie’ was well up and the AUD/NZD exchange rate trended in the region of 1.0490.
Tuesday also weighed on the ‘Aussie’ Dollar as the Reserve Bank of Australia (RBA) hinted at the likelihood of a policy change in its August meeting.
Vote counting for Saturday’s Australian general election also resumed on Tuesday, dampening market mood due to the closeness of the leading parties and the possibility that if no majority vote is met, a ‘hung parliament’ would be possible.
However, ‘Aussie’ sentiment was boosted on Wednesday due to news that the Liberal-National Coalition (the party currently ruling Australia) was edging ahead and was closer to a majority.
As of Wednesday night, the Coalition had won 71 seats and was the closest to the necessary majority of 76. This improved market confidence that a definitive outcome will soon be known and that political uncertainty would not be ongoing.
The commodity-sensitive ‘Kiwi’ Dollar slipped lower against many of its rivals (including the ‘Aussie’) during Wednesday’s session.
The latest Global Dairy Trade auction ended with lower prices for New Zealand’s most lucrative commodity, milk.
Letting down hopes that prices of the commodity were on the road to recovery following consistently low levels throughout 2015 and 2016, prices instead slipped -0.4% lower to US$2,345.
Overall risk-sentiment also dropped this week due to news that global growth prospects had softened due to Britain’s ongoing Brexit issues sparking market turmoil. Scoop reports;
‘Equity markets and commodities fell overnight after the Bank of England said some of the near-term risks of the Brexit had “begun to crystallise”, while three UK commercial real estate funds have suspended redemptions, citing turmoil in financial markets.’
This caused the New Zealand Dollar to weaken further as investors sought out safer assets to invest in, while the ‘Aussie’ recovered from political worries.
Sentiment towards the Australian Dollar is likely to continue to increase in the coming days if markets continue to see a light at the end of the vote counting tunnel.
However, the ‘Aussie’ could see many of its gains reversed if it begins to look increasingly unlikely that a majority will be reached soon. Analysts have suggested that vote counting could continue for as long as a month as postal votes and late votes continue to come in.
A lack of a result in the coming week will see markets becoming concerned over a possible ‘hung parliament’, meaning an extended period of political uncertainty.
The New Zealand Dollar, on the other hand, is more likely to sturdy in the near future once markets cool from their panicked demand for ‘safe-haven’ assets.
The ‘Kiwi’ is especially likely to gain against the ‘Aussie’ towards the end of the month as investors begin to expect an RBA interest rate cut.
At the time of writing, the Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate trended in the region of 1.0495, while the New Zealand Dollar to Australian Dollar exchange rate (NZD/AUD) traded at levels around 0.9522.
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