Australian Dollar to NZ Dollar: AUD/NZD Exchange Rate Relatively Static on Central Bank Woes

May 4, 2015 - Written by Tim Boyer

STORY LINK Australian Dollar to NZ Dollar: AUD/NZD Exchange Rate Relatively Static on Central Bank Woes

RBA Rate Cut Bets Weigh on Aussie

The Australian Dollar remained in a tight range against close counterpart the New Zealand Dollar toward the end of the week, as borrowing cost speculation weighed both Oceanic currencies down. The ‘Aussie’ has been sensitive to Reserve Bank of Australia rate cut speculation for some weeks now as the Australian economy slows and the housing market begins to heat up. However, with so much debate surrounding next week’s policy meeting, it’s likely the ‘Aussie’ exchange rate will experience some hefty movement against other majors.

Economist Alex Joiner stated: ‘The market seems to be craving some clarity around the RBA’s intentions rather than playing a month-to-month guessing game whether or not the Bank will ease further.’

There’s tough debate coming from both sides, especially after recent Australian GDP data picked up in a surprise move.

Economist David de Garis stated: ‘The domestic data has been mildly encouraging, even aside from the employment numbers.’

Recent iron ore appreciation has also allowed the ‘Aussie’ to climb, but signs of a prolonged rally are starting to fade. It’s likely that if the Australian Dollar continues to rise, the RBA may turn to a rate cut to hack it down, after numerous jawboning attempts have failed to work. Furthermore, it’s difficult to trust the RBA as they took the market by surprise cutting rates this year, after insisting it hadn’t considered such a move.

RBNZ Rate Revision Also Likely

Meanwhile, the New Zealand Dollar remained supported by central bank statements in the first quarter of the year. Although the Reserve Bank of New Zealand announced that it wouldn’t be continuing its aggressive rate hike cycle from last year, it did suggest that a period of stability in rates would be favourable. However, that stability has begun to ebb away with the central bank stating this week that it’s left the door of opportunity open for rate decreases. The prospect of a RBNZ rate cut could see the New Zealand Dollar sink against other majors.

Industry expert Derek Halpenny commented: ‘RBNZ assistant governor John McDermott recently hinted at a slight shift in policy bias at the RBNX and the statement today after its meeting certainly confirmed a shift from a more neutral stance to a bias to ease.’ Monday will see the release of New Zealand’s Commodity Price data which could offer the ‘Kiwi’ exchange rate some mild movement.’ New Zealand House Prices will follow during Tuesday’s session.

The main event for the Oceanic region next week will be the RBA’s latest policy decision on Tuesday.

Australian sales numbers will be out on Wednesday.

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