New Zealand Dollar to Australian Dollar (NZD/AUD) Exchange Rate Hits Fresh Low
If you're looking to make an international money transfer, we recommend TorFX.
While the Australian Dollar continued to derive support from domestic inflation data and a better-than-forecast Chinese manufacturing report, the New Zealand Dollar plummeted against almost all of its currency counterparts following the Reserve Bank of New Zealand’s (RBNZ) interest rate decision.
The New Zealand Dollar to US Dollar (NZD/USD) exchange rate brushed a six-week low.
The RBNZ did increase the official cash rate by 0.25 points, as economists anticipated, but it also intimated that further hikes in borrowing costs were unlikely to take place over the rest of 2014.
After a series of interest rate increases since the spring, the OCR now stands at 3.5%.
The decision to take a break from the path of rate hiking comes as the price of dairy (New Zealand’s main export) is falling and domestic inflation levels are becoming a concern.
In his statement, RBNZ economist Graeme Wheeler stated; ‘Over recent months, export prices for dairy and timber have fallen, and these will reduce primary sector incomes over the coming year. With the exchange rate yet to adjust to weakening commodity prices, the level of the New Zealand dollar is unjustified and unsustainable and there is potential for a significant fall. Inflation remains moderate, but strong growth in output has been absorbing spare capacity. This is expected to add to non-tradables inflation. Wage inflation is subdued, reflecting recent low inflation outcomes, increased labour force participation, and strong net immigration.’
It was his comments relating to the New Zealand Dollar exchange rate which dragged the commodity-driven currency lower.
The New Zealand Dollar also slid against the Pound and Euro.
As observed by forex expert Tim Kelleher; ‘The use of the exact word in the RBNZ’s intervention bible – that’s why the market reacted. You’d normally see the Kiwi go 1 US cent in our time zone, it’s been capped at 86.25/50 [against the US Dollar] and might move to 85.50 overnight.’
The ‘Kiwi’ held declines even after the publication of comparatively positive trade data for New Zealand.
According to the latest figures, in June New Zealand recorded an eighth monthly trade surplus. The surplus rose from a revised 270 million New Zealand Dollars in May to 247 million New Zealand Dollars in June.
This meant that the annual trade balance changed from a deficit of 819 million New Zealand Dollars to a surplus of 1.2 billion New Zealand Dollars. The result was largely due to a 34% increase in dairy-based produce.
The Australian Dollar, meanwhile, was able to put on a show of strength as the HSBC Manufacturing PMI for China showed better-than-expected improvement.
In yet another sign that the Chinese government’s attempts to shore up the domestic economy are having the desired effect, the manufacturing measure advanced from 50.7 to 52.0 – a better increase than anticipated and even further into growth territory.
In other currency news, the New Zealand Dollar to Pound Sterling (NZD/GBP) exchange rate trimmed gains after the UK’s retail sales figures for June fell short of expectations.
If today’s US Manufacturing PMI fails to achieve the gain expected the New Zealand Dollar might also recoup ground against the ‘Greenback’.
The New Zealand Dollar to Australian Dollar (NZD/AUD) exchange rate is currently trading in the region of 0.9089.