The Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate took quite a tumble in Thursday’s trading after the Reserve Bank of New Zealand (RBNZ) suggested that the official cash rate may not be stable in future, while speculation for Reserve Bank of Australia (RBA) rate cuts continued to weigh.
The Australian Dollar has been softer while hypotheses emerge that the RBA February meeting next week could see a surprise cut in rates. Central banks have taken to surprising markets in the last few weeks.
The Swiss National Bank (SNB) started the trend when it announced it would be removing the 1.20 cap between the Euro and the Swiss Franc (CHF). The event saw the ‘Swissie’ gain dramatically against a host of other currency majors including the Australian and New Zealand Dollars (CHF/AUD, CHF/NZD).
The next event to send major ripples through the market came in the form of the Bank of Canada’s (BOC) surprise interest rate cut. Markets were knocked for six when the BOC changed the benchmark interest rate after it’d been stable at 1.0% for the past four years (now 0.75%).
So, that brings us back to the potential of an RBA rate cut next week and ‘Aussie’ stability until then.
National Australia Bank strategist Gavin Friend commented: ‘In 25 years, I have not seen a period of such currency volatility starting with the Swiss National Bank’s move last week.’
One of the main reasons economists are forecasting rate cuts is the faltering strength of the global economy. Worldwide growth is waning and slowdowns are occurring in many nations. In addition, the European Central Bank (ECB) just announced a period of QE after recently slipping into deflation.
Strategist Su-Lin Ong commented: ‘The key driver for these central banks is increasing downside risks to global inflation and growth. Canada talked about an insurance cut and pointed at energy, you substitute that in Australia for iron ore and dairy in New Zealand. It’s no coincidence that the commodity nations’ central banks are shifting rapidly in policy assessments.’
The Reserve Bank of Australia has been quiet in the last few weeks after previously stating it hadn’t considered cutting rates.
The Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate has the ability to fluctuate on Friday with a few pieces of low importance domestic data released. However, Monday will be more interesting for the currency pair.
Australian AiG Performance of Manufacturing Index figures will be out, followed by the HSBC china Manufacturing Purchasing Managers Index (PMI).
In addition, Tuesday could be a massive day for ‘Aussie’ trading with the release of the RBA interest rate decision.
The Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate is presently trending in the region of 1.0690. The New Zealand Dollar to Australian Dollar (NZD/AUD) exchange rate resides at 0.9360.
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