Australian Dollar Slips against New Zealand Dollar (AUD/NZD) as Commodity Prices Cause Fluctuations

March 29, 2015 - Written by Frank Davies

STORY LINK Australian Dollar Slips against New Zealand Dollar (AUD/NZD) as Commodity Prices Cause Fluctuations

The Australian Dollar exchange rate declined against the New Zealand Dollar (AUD/NZD) on Friday after the price of iron ore fell.

As both Australian and New Zealand data has been thin on the ground this week, the currencies are extremely sensitive to commodity price changes and global developments.

Australia’s largest export, iron ore, has tumbled in value by around 50% in the last 12 months as a global oversupply continues to dampen prices. Head of Fortescue Metals Andrew Forrest suggested this week that larger mining companies should take action to cut iron ore production in an attempt to prevent prices from falling further. However, industry expert Gina Rinehart argues that Australia’s high-costs and regulations are the problem. Rinehart commented: ‘We need to do what we can to cut Australia’s high costs. That’s where the Australian government can come in or should come in. They need to recognise soon that they need to come to the party and recognise falling commodity prices and cut the horrific expense of their regulations and compliance burdens.’

After US Durable Goods Orders flopped this week, it was expected that higher-risk currencies such as the Australian Dollar would climb; however, as markets look for signs of interest rate hikes, it appears as if they’re ignoring a dip in US data. Industry expert Sam Tuck stated: ‘The market has looked right through the figures and continued to strengthen the US Dollar against the ‘Aussie’, which is a pretty counter-intuitive move.’

Meanwhile, the New Zealand Dollar has been pegged to potentially reach parity against its ‘Aussie’ counterpart this year. However, some experts have suggested that the ‘Kiwi’ is overvalued. Trader Michael Johnston suggests the appropriate value for the ‘Kiwi’ ‘is a good chunk lower than where we are now.’ The move to parity is expected to be a result of central bank divergences. While the Reserve Bank of Australia could feasibly by gearing up to cut interest rates again, the Reserve Bank of New Zealand is expected to maintain some stability in monetary policy. Johnston suggests parity is indeed a possibility ‘given the Reserve Bank of Australia is cutting rates and the RBNZ is firmly on hold.’

The ‘Kiwi’ does have factors weighing on it at present, such as commodity prices. The New Zealand economy is extremely sensitive to changes in dairy products as the nation’s largest export. However, as the ‘Kiwi’ has recently climbed against some other majors, the exchange rate has been detrimental to exports such as wool.

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