Australian Dollar Struggles against New Zealand Dollar as RBNZ Rate Cut Bets Fall
The Australian Dollar strengthened from its recent weak trend on Tuesday, but was unable to recover against a bullish New Zealand Dollar as NZ markets reacted optimistically to comments from the Reserve Bank of New Zealand (RBNZ). After plunging to a month-and-a-half-low of 1.0424 in Tuesday’s European session, the pair fluctuated in the region of 1.0445.
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Australian Dollar (AUD) Firms Despite Bullish ‘Kiwi’
The Australian Dollar plunged across the board last week, and looked to be in a position to continue that trend this week too despite optimistic factors boosting the ‘Aussie’s appeal.
Markets recently took the Australian Dollar to highs of considerable psychological resistance due to the high yield potential of the currency as well as rising prices of iron ore, Australia’s most lucrative commodity.
After hitting the key level of 0.77 AUD/USD however, markets decided to sell the ‘Aussie’ off and lock in profit from its highs. They sold the currency of until it hit three-week-lows this week.
The ‘Aussie’ remains among the most appealing investments among major currencies, especially during risk-on market movements.
The Reserve Bank of Australia’s (RBA) comparatively high interest rates as well as low bets of further overnight rate cuts have left the ‘Aussie’ as a favourite compared to currencies belonging to nations with ultra-low inflation.
Prices of iron ore also continued to improve on Tuesday, once again rising above US$61 per tonne to hit $61.23. This left the ‘Aussie’ in a strong position for potential advances.
New Zealand Dollar (NZD) Bullish Throughout Tuesday on RBNZ Comments
The New Zealand Dollar was one of the strongest major currencies on the market on Tuesday, as investors piled into the currency following a surprisingly hawkish comment from Reserve Bank of New Zealand (RBNZ) Governor Graeme Wheeler.
After cutting New Zealand’s interest rate in early August, the New Zealand Dollar remained surprisingly sturdy as markets had priced in a bigger rate cut than -25 basis points.
The New Zealand Dollar was valued even higher across the board on Tuesday amid surprising comments that the bank was not going to introduce rapid easing measure expansion. The Financial Times reported;
‘The Kiwi rose as much as 0.9 per cent on Tuesday following comments from New Zealand’s central bankers indicating more easing is on its way – but at a more moderate pace that investors expected. …
Policymakers repeated that inflation was the main driver for the rate cut made earlier this month and flagged up the “trade off” between lower interest rates and higher asset prices’
This was good news to markets. While the RBNZ’s interest rate is at 2%, a record low for New Zealand, this is still one of the highest interest rates in the developed world. This makes the New Zealand Dollar an appealing, high-yield currency.
Australian Dollar to New Zealand Dollar Exchange Rate Forecast: Will Risk Sentiment Return?
With risk-sentiment remaining low in the global forex market due to widespread focus on the US economy this week, the Australian Dollar and New Zealand Dollar’s movements are limited to the downside.
As a result, the New Zealand Dollar’s Tuesday rally is also likely to be limited, and will not last much longer.
This will give the Australian Dollar a chance to advance later in the week – unless New Zealand’s Wednesday trade balance report particularly impresses investors.
The ‘Aussie’ will also have an opportunity to advance on Wednesday if Australia’s Q2 construction work report beats forecasts. It is currently expected to lighten from -2.6% to -2.0%.
Otherwise, the nations’ upcoming economic calendars are relatively quiet, meaning the AUD/NZD exchange rate’s movements are likely to be muted.
If iron ore prices continue to advance higher this week, the Australian Dollar could regain some of its lost ground vs. the ‘Kiwi’. However, neither currency is likely to spring to life unless the Fed disappoints US markets on Friday.
At the time of writing, the AUZ NZD exchange rate traded in the region of 1.0445, while the NZD AUD exchange rate traded at around 0.9572.