Strong Gains for Australian Dollar to New Zealand Dollar (AUD/NZD) Exchange Rate despite Cautious RBA Meeting Minutes Due to Approach of Dairy Auction
Minutes from the latest Reserve Bank of Australia (RBA) monetary policy meeting have shown that the board remains only cautiously optimistic with regards to the monetary policy outlook, but focus on the upcoming Global Dairy Trade auction has helped the Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate make solid gains.
The RBA concluded that the task of lowering the unemployment rate and pushing inflation to around the 2.5% mark (the midpoint of its target range) was likely to happen only gradually, with members of the board concluding that ‘there was not a strong case for a near-term adjustment in monetary policy’.
The minutes stated;
‘The low level of interest rates had supported growth over 2017, which had reduced the unemployment rate and brought inflation closer to the target. Further progress on these goals was expected in the period ahead, but this progress was likely to be gradual.’
‘Over 2018, GDP growth was expected to exceed potential growth and CPI inflation was expected to increase gradually to be a little above 2 per cent. Members noted that an appreciation of the Australian Dollar would be expected to result in a slower pick-up in economic activity and inflation than forecast.’
Although a gloomier outlook on monetary policy than markets would have liked, the minutes deviated little, if at all, from the commentary released immediately after the 3rd April policy meeting, so the RBA’s cautiousness has already been priced in to the Australian Dollar (AUD).
This means that the Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate has been able to rise, with markets relieved that policymakers aren’t more dovish with their economic forecasts.
New Zealand Dollar Weak as Markets Await Global Dairy Trade Auction; AUD/NZD Exchange Rate Advances
The New Zealand Dollar (NZD) has been kept on weak form today by market focus on the upcoming Global Dairy Trade auction, allowing the AUD/NZD exchange rate to advance.
The last four GDT events have all yielded price drops, taking the average price of dairy goods per metric tonne back below US$3,500 and suggesting that the commodity may be trapped in a narrow range.
Over the past year-and-a-half the GDT price index has trended between 935 and 1,096 – better than its August 2015 low of 514, but significantly below the April 2013 high of 1,573.
Oversupply continues to plague the dairy market, keeping pressure on New Zealand’s chief export and the domestic milk industry and therefore threatening the economic outlook.
Markets are likely to remain on hold until after the results of the event have been announced, with another drop in milk prices forecast to push NZD lower, while the Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate could come under pressure if there is an uptick in winning prices.
Australian Dollar to New Zealand Dollar (AUD/NZD) Exchange Forecast to Gain if Markets Focus on Mixed NZ Inflation Outlook
The next influential data as far as the Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate is concerned will be the New Zealand consumer price index.
Inflation during the first quarter of 2018 is expected to have accelerated from 0.1% in the last three months of 2017 to 0.5% during the January-March period.
Year-on-year, however, inflation hasn’t made as much progress, with economists predicting that annualised price growth will have slowed from 1.6% to 1.1%.
This could weigh on the outlook for domestic monetary policy, boosting the Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate on fears that the Reserve Bank of New Zealand (RBNZ) is likely to keep the official cash rate frozen for some time to come.