As the Chinese Yuan (CNY) hit a five-year low on Wednesday the Australian Dollar (AUD) has slumped across the board due to decreasing risk sentiment.
Both the ‘Aussie’ (AUD) and the ‘Kiwi’ (NZD) have been dented as a result of trader risk aversion this week, following the turmoil of Monday’s Chinese stock market plunge. However, as Tuesday saw Beijing intervene to prop up the Shanghai Composite Index the commodity-correlated currencies were given some measure of reprieve. Pundits remained more cautious towards the New Zealand Dollar ahead of the day’s GlobalDairyTrade auction and their concerns were soon confirmed as the price of milk solids retreated in the first session of 2016. As this does not seem to bode well for outlook of the New Zealand dairy industry, and with speculation that the Reserve Bank of New Zealand (RBNZ) may be prompted to cut interest rates further in the coming year, the AUD/NZD exchange rate trended higher during the day’s European session.
Demand for the Australian Dollar soon took a downturn, however, as domestic Services PMI proved distinctly disappointing. Dropping from 48.2 to 46.3 this discouraging result showed that the sector had ended the year by edging further into contraction territory, undermining any impressions of a stronger Australian economy.
Hot on the heels of this unimpressive Australian data the latest Chinese Services PMI was found to have slowed significantly in December, sliding from 51.2 to 50.2. With sector growth minimal China’s ambitions of moving towards a more service-orientated economy appeared to take a blow, equally stoking fears of an intensifying global slowdown. Jittery pundits were further spooked as the Yuan (CNY) hit a new five-year low, prompting the antipodean currency to slump sharply across the board during Wednesday’s European session.
The upcoming Federal Open Market Committee (FOMC) meeting minutes are likely to provoke additional movement for the AUD/NZD exchange rate, as if policymakers are found to have been more hawkish than previously thought the odds of a second rate hike in the near term will increase. Should the Fed seem more hesitant, though, the commodity-correlated currencies are likely to benefit from any resultant US Dollar (USD) weakness.
An ‘Aussie’ rally could also be on the cards on Thursday if the November Australian Trade Balance shows a decreased trade deficit as forecast, shoring up faith in the domestic economy. Nevertheless, any further volatility in global stock markets is likely to have the greater impact on the AUD/NZD exchange rate ahead of the weekend.
At time of writing, the Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate was trending lower at 1.0650, while the New Zealand Dollar to Australian Dollar (NZD/AUD) pairing was making gains in the region of 0.9384.
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