Australian Dollar Advances Strongly Against New Zealand Dollar Ahead of Fed Meeting
A general increase in market risk appetite helped to shore up the Australian Dollar to New Zealand Dollar exchange rate at the start of the week.
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With an imminent Federal Reserve interest rate hike already priced into the markets the ‘Aussie’ (AUD) has had room to strengthen against its rivals.
As investors piled back into the higher-yielding Australian Dollar this helped to eclipse a somewhat disappointing Australian credit card purchases figure.
In a sign of weaker consumer confidence purchases were found to have weakened modestly at the start of the year, potentially preceding slowing within the wider economy.
The New Zealand Dollar (NZD), on the other hand, was weighed down by a weak food price inflation measure.
In contrast to January’s 2.8% increase on the month prices were found to have risen just 0.2% on the month in February.
This sharp dip was not seen to bode well for the policy outlook of the Reserve Bank of New Zealand (RBNZ), as any significant faltering in inflation provokes fresh speculation over the potential for further policy easing.
A bullish US Dollar (USD) could also encourage the RBNZ to take a more dovish view on monetary policy, suggesting that the ‘Kiwi’ may trend lower if the Fed takes a more hawkish view at its meeting.
However, the AUD NZD exchange rate may struggle to hold onto its gains if the latest Australian confidence surveys indicate that domestic sentiment is weakening.
Should business or consumer confidence be found to have increased on the month, though, this could boost the ‘Aussie’ across the board.
Support for AUD exchange rates could also come on the back of the latest Chinese retail sales and industrial production figures.
Providing that the Chinese economy offers fresh proof that it is unlikely to undergo a hard landing market risk appetite is likely to remain elevated, offering a potential rallying point to both the ‘Aussie’ and the ‘Kiwi’.
Later in the week demand for the New Zealand Dollar could deteriorate further if the fourth quarter gross domestic product data proves unimpressive.
Forecasts point towards a moderate slowing of growth from 1.1% to 0.7% on the quarter, further discouraging confidence in the outlook of the domestic economy.
If the Fed proves to be more hawkish in its policy outlook than anticipated, meanwhile, the AUD NZD exchange rate may return to a weaker footing, as a bullish US Dollar tends to weigh more heavily on the ‘Aussie’.
At the time of writing, the Australian Dollar to New Zealand Dollar exchange rate was making strong gains in the region of 1.09.