US Fed Beige Book Optimism Limits both AUD and NZD Exchange Rates
The Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate traded higher on Monday; with the ‘Aussie’ Dollar proving the more resilient of the pair in the face of the US Dollar’s (USD) current surge.
Markets are currently responding to the periodic release of the US Fed’s Beige Book – a summary of contacts with US businesses and the overall outlook that is revealed amongst them.
The latest release proved markedly optimistic, with the US economy on track for continued growth thanks to the tightening labour market and evidence of higher business spending and investment on the back of US President Donald Trump’s latest tax cuts.
There was, however, some concern regarding the Trump administration’s use of tariffs, with businesses still worried that retaliatory measures from China could prove a massive hindrance.
Nonetheless, the optimism for the US economy seemed to underscore plans for multiple rate hikes from the US Federal Reserve this year – an outlook that propelled the US Dollar and siphoned demand once again away from the commodity currencies (particularly with US bond yields hitting fresh highs).
Australian Inflation at the Forefront – What can we Expect for the AUD/NZD Exchange Rate?
Today is a rather quiet one for Australian data, but markets should have plenty to chew over tomorrow in the form of the Australian consumer price inflation results.
Analysts are currently expecting inflation to climb by 2% in Q1 this year (year-on-year), up from the previous period’s score of 1.9%.
The quarterly reading for Q1 2018 is expected to fall back, however, from 0.6% to 0.5%.
If inflation does move into the Reserve Bank of Australia’s (RBA) target 2% range then it could push the central bank closer to a rate hike this year, but given the sluggish, below-forecast rise in Australian jobs in March the RBA will likely remain quite cautious.
Sarah Hunter BIS Oxford Economics’ Head of Macroeconomics echoed this outlook, pointing out that jobs growth has ‘remained somewhat soggy after last year’s spectacular performance’.
Nonetheless, an above-forecast reading could send RBA bulls into overdrive.
New Zealand Balance of Trade Readings Ahead – Will New Zealand Dollar (NZD) Exchange Rates Find Renewed Support?
The main data event for the New Zealand Dollar this week will be the NZ trade balance in March, which is expected to reveal a surplus of NZ$200m, down from the previous month’s surplus of NZ$217m.
A higher surplus is generally beneficial for a currency as it points to greater demand from foreign buyers for said nation’s exports.
Thus a lower reading tends to bode poorly.
This week’s Roy Morgan consumer confidence gauge for April could also prove notable, but the overall trajectory for the AUD/NZD exchange rate this week will likely be highly dependent on the performance of the US Dollar, particularly in light of Thursday’s durable goods orders and Friday’s gross domestic product (GDP) readings.