The Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate declined significantly on Tuesday as investors suggested the Reserve Bank of New Zealand (RBNZ) stance on monetary policy was favourable.
The RBNZ recently stated that it would be taking a neutral stance on monetary policy as tumbling oil values pressure consumer prices lower. In previous statements the central bank had stated that it would recommence its tightening cycle when economic conditions allowed.
However, Tuesday saw the release of China’s Consumer Price Index and with it, speculation about monetary easing. As Australia and New Zealand’s largest trading partner, any developments in China can affect both the ‘Aussie’ and the ‘Kiwi’ rather dramatically.
The Chinese Consumer Price Index slipped to 0.8% on the year in January from 1.5%—a larger than forecast fall.
HSBC economist Ma Xiaoping stated: ‘Basically, domestic demand is still pretty weak. We still don’t see any positive effects of the stimulus measures put through at the end of last year. Obviously, policy makers need to do more.’
Economists have speculated that the People’s Bank of China (PBoC) will be under pressure to introduce another rate cut in order to stimulate growth.
Economist Dariusz Kowalczyk commented: ‘There are very strong arguments from all directions of a need for monetary easing.’
The Australian and New Zealand Dollars increased on economists’ hypothesis, as a Chinese rate cut could help to strengthen Trans Tasman exports.
The Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate could be in for additional fluctuations on Wednesday with the release of New Zealand Card Spending figures. January is expected to see 0.2% growth after December’s -0.1%. In addition, Australian Consumer Confidence stats will also emerge.
Australian Home Loans and Investment Lending stats are due for publication later in Wednesday’s session and could help strengthen the Australian Dollar if favourable. Home Loans are predicted to rise by 2.0% in December after November’s -0.7%.
The Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate is residing in the region of 1.0518. The New Zealand Dollar to Australian Dollar (NZD/AUD) exchange rate is trending at 0.9513.
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