Australian Dollar to New Zealand Dollar Exchange Rate Rises on Hopes for Economic Boom

January 24, 2018 - Written by Frank Davies

STORY LINK Australian Dollar to New Zealand Dollar Exchange Rate Rises on Hopes for Economic Boom

The Australian Dollar to New Zealand Dollar exchange rate progressively worsened over Tuesday’s trading session, due to reports of declining consumer confidence.

The AUD/NZD pairing opened trading in the region of 1.0944 on Tuesday morning, but by the evening the Australian Dollar was trading around 1.0877 against the New Zealand Dollar.

The main limiting news was that the ANZ-Roy Morgan weekly consumer confidence had declined, just one week after hitting a four-year high on 15th January.

The confidence index decline from 123.5 points to 119.4 was also the first decline seen since three consecutive increases, which amplified the negative impact of the news.

Discussing the data, ANZ Head of Australian Economics David Plank said;

‘Consumer Confidence pulled back this week after a series of strong reports.

The sharp fall in sentiment around households’ current finances may reflect a jump in petrol prices across Melbourne and Brisbane amidst an environment of low wage growth.

Despite the weekly fall [however], this sub-index sits well above its long term average, as does the headline index.

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Looking past the weekly volatility, we expect sentiment to remain supported by a strong labour market and a solid outlook for economic activity in 2018’.

Another factor weighing on the Australian Dollar was the concern that Chinese demand for iron ore was the only thing preventing a price crash for the commodity.

The underlying worry was that with inventories of the resource increasing across the world, a crash in the value of iron ore could be on the way.

NZ news showed that services sector activity had dipped in December, but the New Zealand Dollar still rose because of high-impact international trade news.

The Trans-Pacific Partnership (TPP), a multinational trade deal that almost collapsed a year ago, has since been approved.

The deal originally included the US as a member, but the country left the arrangement in one of Donald Trump’s first actions as President in 2017.

Australia is also part of the TPP agreement, but the Australian Dollar didn’t appreciate on Tuesday because of wider concerns about commodities and consumer confidence.

Australian Dollar to New Zealand Dollar Rate Rises on Positive Growth Forecast

Today’s Australian Dollar to New Zealand Dollar advance has been triggered by the latest Westpac leading index reading, which has shown a 0.3% rise in December.

The measure considers the probable pace of economic growth in the coming months, so a rising figure indicates better economic expectations.

Commenting on the stats, Westpac Chief Economist Bill Evans said;

‘This is a very strong above trend reading and, following the solid results in October and November, points to solid above trend growth in the early part of 2018.

The boost to growth shows a healthy mix of both international and domestic factors providing further confidence around the near term outlook’.

While Evans has warned that this growth spurt could prove short-lived, the present strength of the Australian Dollar suggests that AUD traders are ignoring this factor for now.

In other AU news, iron ore prices have fallen to a four-week low, which is being blamed on lower steel production in Chinese steel mills.

Iron ore, a key Australian mining export, is a primary component in the steelmaking process, so reduced steel production means reduced demand for iron ore.

New Zealand Dollar Trades Tightly ahead of Inflation Data

The New Zealand Dollar has dipped against the Australian Dollar today, despite HSBC economist Paul Bloxham forecasting an NZ interest rate hike as early as July.

Mr Bloxham has stated that because of NZ economic expansion, the Reserve Bank of New Zealand (RBNZ) could have its hand forced on the next interest rate decision.

NZD traders have been more concerned about upcoming inflation data, which is tipped to show a slowdown in the fourth quarter.

AUD/NZD Exchange Rate Forecast: Australian Dollar Turbulence Possible on USD Movement

There isn’t any major Australian data out for the rest of the week, so the AUD/NZD exchange rate could instead be affected by US Dollar fluctuations.

US President Donald Trump will be making a speech at Davos on Friday; if his remarks trigger a US Dollar advance, the Australian Dollar could fall in value.

The next NZ data will be out sooner, when inflation rate figures are announced this evening.

The stats for Q4 2017 are tipped to show a quarter-on-quarter decline in inflation, which may devalue the New Zealand Dollar.

Lower inflation means reduced odds of an interest rate hike from the Reserve Bank of New Zealand (RBNZ).

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TAGS: Australian Dollar Forecasts