Australian Dollar Trades Flatly with New Zealand Dollar despite Positive NZ Data
The Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate fluctuated during Thursday’s session after a sudden recovery from the ‘Aussie’ in the morning. A lowered dairy forecast from the Fonterra group caused otherwise sturdy ‘Kiwi’ sentiment to drop.
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Australian Dollar (AUD) Struggling on Commodity Prices and RBA Concerns
The Australian Dollar has seen ongoing difficulty staying afloat throughout May since a sudden Reserve Bank of Australia (RBA) interest rate cut shocked investors. Despite this, AUD/NZD climbed up to a new weekly high of 1.0741 on Thursday and trended at around 1.0706.
With economists now expecting at least one more RBA cut before the end of the year, the ‘Aussie’ has seen ongoing pressure and is currently the second-worst performing G10 currency of the year, according to The Australian.
The price of Australia’s most lucrative commodity, iron ore, has also struggled to stay afloat in recent weeks and is currently expected to drop to below US$50 per tonne within days.
Domestic data has been unable to help the Australian Dollar maintain favour, as Wednesday’s report of construction work narrowed from -3.6% to -2.6%, letting down expectations of an improvement to -1.5%.
However, the ‘Aussie’ was able to enjoy a slight recovery against some rivals on Thursday as the US Dollar weakened on poor domestic news, influencing strong risk-on movements in the forex market.
New Zealand Dollar (NZD) Suffers from Lowered Fonterra Forecast
While the New Zealand Dollar was previously seen as largely favourable to its Australian peer, a new forecast of dairy prices from the Fonterra Co-operative Group surprised investors and dented ‘Kiwi’ appetite.
‘Global dairy giant Fonterra Co-operative Group Ltd, expects to pay its farmer shareholders more in the coming season, but the increase will offer little relief as the forecast remains below estimated break-even levels.
The world’s largest dairy exporter said it would pay NZ$4.25 ($2.86) per kilogram of milk solids in the 2016-17 season, up from NZ$3.90 in the season just ending.
Chairman John Wilson said Fonterra’s forecast took into account factors including the high New Zealand dollar exchange rate, supply volumes from other major dairy regions, global inventory levels, and the economic outlook of major dairy importers.’
This news worried investors who had recently favoured the New Zealand Dollar due to reduced bets of a Reserve Bank of New Zealand (RBNZ) interest rate cut. The forecast being cut, in part due to a strong ‘Kiwi’, influenced economists to once again predict that an RBNZ interest rate cut was likely in the near future.
Optimistic data may have muted the New Zealand Dollar’s fall, as New Zealand’s trade surplus printed a surprising increase to 292m, despite being predicted to fall from 189m to 25m.
Australian Dollar to New Zealand Dollar Exchange Rate Forecast: US Dollar Strength Likely to Influence AUD/NZD
Markets briefly took their focus off of the influential US Dollar during Thursday’s session following poor US data and lower bets of a June Federal Reserve interest rate hike. As a result, risk-sentiment increased and saw increased focus on the ‘Aussie’ and ‘Kiwi’.
It’s possible that the Australian Dollar could experience additional strength if investors want to see the ‘Aussie’ rebound from its three-month-lows.
However, knowledge that the Reserve Bank of Australia (RBA) could cut rates between June and August will see the ‘Aussie’ pressured for the foreseeable future.
On the other hand, the shift of analyst expectations for a Reserve Bank of New Zealand (RBNZ) interest rate cut is still relatively fresh. As a result, AUD/NZD could continue its recovery on Friday.
RBA Assistant Governor Guy Debelle is due to speak before the end of the week, which could also weigh on the Australian Dollar if he rekindles rate cut concerns in investors.
In terms of data, both Australian and New Zealand economic calendars are relatively quiet until Monday’s session, which sees the release of Australian HIA new home sales, followed by New Zealand building permits on Tuesday.
At the time of writing, the Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate trended in the region of 1.0706, while the New Zealand Dollar to Australian Dollar (NZD/AUD) exchange rate traded at around 0.9335.