Australian Dollar Advances against New Zealand Dollar (AUD/NZD) as Central Bank Statements Weigh

April 26, 2015 - Written by Ben Hughes

STORY LINK Australian Dollar Advances against New Zealand Dollar (AUD/NZD) as Central Bank Statements Weigh

AUD/NZD Gained on RBA Rate Cut Comments

The Australian Dollar managed to climb higher against the New Zealand Dollar on Friday as investors digested recent central bank statements The week began badly for the ‘Aussie’ with the Reserve Bank of Australia suggesting further interest rate cuts could occur in the near future. However, that all changed when Australia’s latest inflation reading printed positively, showing an unexpected rise from 2.2% to 2.3% in the first quarter. The figure saw investors price out the prospect of a May rate cut and caused the ‘Aussie’ exchange rate to surge against other majors.

Economist Paul Bloxham commented: ‘This makes the RBA’s next meeting an even closer run affair. Although the RBA has indicated that they expect to cut rates further, the past month has delivered upside surprises to local jobs, retail and inflation numbers and now the iron ore price is rallying too. A further rally in the iron ore price next week could see the case for a near term rate cut diminished further.’

Kiwi Flirts with Parity

However, this is bad news for the ‘Kiwi’ exchange rate which has been flirting with parity against the ‘Aussie’ for the past few weeks. Now currency experts are predicting the New Zealand Dollar would need the RBA to introduce another rate cut in order to allow the pair to equalise. The New Zealand Dollar had a wild ride this week; initially it gained on the RBA statements as investors felt the ‘Kiwi’ was the more favourable of the two Oceanic currencies. The Reserve Bank of New Zealand has a higher interest rate and therefore the currency is better yielding. However, the ‘Kiwi’ plummeted when the RBNZ announced that it may consider cutting interest rates in the near future in order to manage inflation.

Economist Paul Dales commented on the situation, saying: ‘There is little pressure on the Reserve Bank of New Zealand to cut interest rates at its policy meeting this Thursday. We expect that rates will be left at 3.5% and that the Bank will retail its neutral policy bias. Things may change, however, should economic growth in New Zealand slow later this year as we expect.’

Thursday also saw New Zealand Credit Card Spending slip from 5.8% to 5.2% on the year in March, while the month recorded 0.6% growth. Furthermore, the ANZ New Zealand Consumer Confidence Index jumped from 124.6 to 128.8 in April, a rise of 3.4%.

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