After a less dovish set of Reserve Bank of Australia (RBA) meeting minutes the Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate has been trending higher.
In spite of a more severe-than-expected contraction in fourth quarter Japanese GDP (-1.4% as opposed to the forecast decline of -0.8%) stock markets saw a fresh rally at the start of the week. Risk appetite increased in response to the latest dovish comments from Japanese Prime Minister Shinzo Abe, who indicated that the Bank of Japan (BoJ) has scope to loosen monetary policy further in order to drive the recovery of the domestic economy. This helped to reduce the negative impact of a more mixed raft of Chinese trade data, allowing commodity-correlated currencies to climb on Monday.
However, as the latest New Zealand Services PMI slowed sharply from 58.5 to 55.4 in January the ‘Kiwi’ (NZD) was on slightly less bullish form after the weekend. Given wider slowdown concerns and the persistent weakness of the dairy industry, this sign of weakness within the New Zealand economy gave investors little to be optimistic about. As a result the Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate made some modest gains.
Confidence in the Australian Dollar (AUD) jumped on Tuesday as the February meeting minutes of the Reserve Bank of Australia (RBA) were published. While policymakers took a less hawkish tone with regards to future monetary policy this was counterbalanced by a lack of preoccupation with negative global trends, suggesting that the central bank is in no great hurry to cut interest rates. Stronger domestic data equally continues to undermine the case for a near-future rate cut, prompting the AUD/NZD currency pair to rapidly climb to a fortnightly best of 1.0870.
During Tuesday’s European session the ‘Kiwi’ slumped further on the back of the latest GlobalDairyTrade auction, as prices fell for the fourth consecutive session. Milk solids slipped another -2.8% in value, worsening the outlook of the New Zealand dairy industry as producers continue to struggle amidst lower global demand. As building domestic pressures are likely to increase the impetus for the Reserve Bank of New Zealand (RBNZ) to lower interest rates in the coming months, the NZD may remain under pressure.
The ‘Aussie’ could continue to extend its gains against the New Zealand Dollar today if the January Westpac Leading Index is found to have improved as forecast. Expectations point towards an increase from -0.3% to 0.1%, a result which would signal a more positive development in economic conditions. Should the figure fall short of forecast, however, the AUD/NZD exchange rate may enter a downturn.
At the time of writing, the Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate was trending bullishly around 1.0847, while the New Zealand Dollar to Australian Dollar (NZD/AUD) pairing was slumped in the region of 0.9215.
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