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AUD/NZD Exchange Rate Advances as ?Kiwi? Drops on Data and Dairy Outlook

May 29, 2015 - Written by Frank Davies

New Zealand Building Permits Data Undermines NZD Demand



The Australian Dollar managed to clamber higher against the New Zealand Dollar on Friday as many factors weighed on the latter currency. The ‘Kiwi’ was offered little support when New Zealand Building Permits contracted by -1.7% in April and the March ecostat was downwardly adjusted to 10.3%.

Industry expert Neil Kelly commented: ‘Consented apartment numbers often fluctuate, but have returned to historical average levels in the last couple of years, following four low years. Consents for houses and townhouses are also at historical average levels, while retirement village consents have reached record highs over the past year.’


Westpac economist Michael Gordon also weighed in on the matter, saying: ‘The centre of activity in housing construction has clearly shifted. The number of consents in Auckland rose to its highest in nearly ten years, with multiples (apartments and townhouses) accounting for almost half of the total.’


NZ Business Confidence Falls



Additionally, New Zealand’s Business Confidence almost halved in May, falling from 30.2 to 15.7. The tumble is thought to be a result of weaker employment, investment and activity stats. However, the ‘Kiwi’ exchange rate dropped to a four-year low against the US Dollar on Friday as the latest Fonterra dairy forecast weighed. The dairy giant has reduced its farming payouts for the next season after dairy prices have declined by around 50% in the past 12 months. Furthermore, the reduced payout is likely to create a negative impact on the domestic economy as spending will be lessened. New Zealand’s exports to China have also been reduced which hasn’t helped the sector or the commodity price to recover.

Industry expert Peter Vavanaugh stated: ‘There is some near-term cash flow implications for dairy farmers in that the 2015 payout has been revised down, it means that the income to dairy farmers over the next few months will be a lot lower than it was a year ago and probably a lot lower than many of them had expected, so that’s going to put pressure on farm spending and debt.’


RBA Speculation Limits Aussie Gains



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Meanwhile the ‘Aussie’ exchange rate also had a bad week with speculation that the Reserve Bank of Australia may cut interest rates again running rife. Additionally, the resiliently high ‘Aussie’ could be another reason for the RBA to make a downward adjustment to borrowing costs as attempts to jawbone the currency lower are rather futile. By way of data, Australia’s Private Sector Credit stat slipped from 6.2% to 6.1% in April on the year, instead of rising to 6.3% as expected.



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