Both the Australian Dollar and New Zealand Dollar have benefitted across the board after traders pushed back their North America rate hike bets, however the ‘Kiwi’ in particular seems to be winning the biggest favour.
Last week the Australian Dollar to New Zealand Dollar pairing enjoyed its highest point since September 2015. A series of good news for Australia including iron ore commodity rallies and confidence from the Reserve Bank of Australia (RBA) in keeping interest rates high for the time being are major factors in recent ‘Aussie’ strength.
A crisis in powdered milk prices, New Zealand’s primary export, is also a considerable contribution to ‘Kiwi’ weakness.
However, since Easter weekend drew to a close and markets reopened, the AUD has weathered a fairly significant drop against the New Zealand Dollar, having fallen over -150 pips. The pair currently trades almost -0.4% down at 1.1085.
Possible reasons for the New Zealand Dollar’s edge over the ‘Aussie’ include positive New Zealand Building Permit data for February. Released yesterday morning, the number of authorised building permits soared from -7.8% in January to 10.8% month-on-month.
Some analysts also cite the dropping prices of iron ore, Australia’s primary commodity, as a reason for the heightened ‘Kiwi’ favour. While the commodity is still above normalcy, prices dropped for the fifth session in a row.
This, alongside analyst fears that the RBA may be forced to make an interest rate cut if the Australian Dollar continues to be so bullish, may have resulted in a more bearish attitude towards the ‘Aussie’.
The Australian Dollar and New Zealand Dollar have both enjoyed healthy rallies against many rivals this week after Federal Reserve Chairwoman Janet Yellen reasserted the Fed’s dovish outlook for interest rate hikes.
The highly influential US central banker inspired large scale risk-sentiment after disappointed investors began to anticipate Fed interest rate hikes would not come until much later.
While the ‘Kiwi’ currently has the edge over its Australian rival, both currencies have been strengthened considerably from investors buying into the risky commodity bloc.
This follows a short period of risk-off attitudes previously after investors hastily bought the US Dollar. Other Fed policymakers had suggested last week that a rate hike could happen as soon as April.
Since negative data and Yellen’s speech earlier this week however, the ‘safe-haven’ US Dollar has looked thoroughly unappealing with vastly increased favour towards AUD and NZD.
With less than a week to go until the Reserve Bank of Australia’s newest rate decision announcement, taking place on the 5th of April, investors may prefer the New Zealand Dollar to the ‘Aussie’ towards the end of the week.
Various Australian data sets are also due for release today and tomorrow. Home sales, private sector credit and performance of manufacturing index prints come in this week. However, there is very little New Zealand data in comparison with only the business confidence print due.
Markets seem likely to settle away from the Australian Dollar towards the end of the week and the beginning of next week as investors wait on the RBA’s newest decision.
Some analysts such as BT Investment Management have bet that the Australian Dollar’s recent strides could come back to hurt it, and that the fact the RBA have yet to make any rate cuts this year is making some investors anxious about next week’s announcement. Iron Ore prices are also likely to keep falling.
With data a little quieter in New Zealand until next week’s vital dairy auction event, the ‘Kiwi’ may remain as the risk-on investor’s commodity currency of choice unless the outlook for dairy trade reminds investors of its bleakness.
The Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate currently trends around 1.1085 while the New Zealand Dollar to Australian Dollar (NZD/AUD) exchange rate trends in the region of 0.9018.
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