The Australian Dollar to New Zealand Dollar Exchange Rate strengthened by over 1% throughout yesterday’s trading session after The Reserve Bank New Zealand (RBNZ) assistant governor John McDermott squashed market expectation of a rate rise for New Zealand in the near future.
The AUD/NZD Exchange rate traded at a record low of 1.0038 on Tuesday. Yesterday the markets commenced the selloff of the ‘Kiwi’ which continued throughout the offshore trading session making it to a high of 1.0280.
Governor McDermott addressed the Waikato Chamber of Commerce and Industry in Hamilton on the topic of inflation, likening it to a sleeping dragon. He made mention of the sharp decline in global oil prices having a large impact on headline inflation. That inflation is low globally and currently below target range in a majority of countries. He further explained that this global inflationary issue has impacted New Zealand through extremely low global interest rates causing an appreciation of the New Zealand Dollar.
The banks message was made specifically clear in Governor McDermott’s concluding statements were he stated ‘at present, the bank is not considering any increase in interest rates’ and that ‘Evidence of weakening demand and domestic inflationary pressures would prompt us to consider lowering interest rates’.
This is quite specific language from a central bank and the market reacted strongly to this news, as much of the rate rise expectation has been built into the current AUD/NZD Exchange rate throughout the early part of 2015.
The markets appear to now be split 50/50 on the expectation of a rate cut here in Australia for the next Reserve Bank of Australia (RBA) Interest rate Decision on 5th May. If the RBA is to leave interest rates on hold again here we will likely see a change to the downward trend we have seen in this currency pairing.
The US released their weekly jobless claims, an early sign of the potential for their official unemployment rate. The figure was an increase on the number of individuals claiming for unemployment insurance at 295,000 from the previous figure of 294,000. Also out of the US overnight was a disappointing result on New Home Sales at 481,000 below the previous result and the forecast which was expected at 514,000. The US Dollar however didn’t lose further ground from these results showing that investors still have a preference for the US Dollar on the expectation of possible rate raises in the later part of 2015. The AUD/USD Exchange rate is current trading at 77.81 US Cents and the AUD/NZD is currently trading at 1.0244 at 8:30 AM AEST today.