Australian Dollar New Zealand Dollar (AUD/NZD) Exchange Rate Trends Higher on Inflation Estimate
Although the TD Securities inflation gauge for December slowed somewhat on the year this was not enough to knock the Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate off an uptrend.
While the measure lost some momentum in December it remained comfortably in excess of the Reserve Bank of Australia’s (RBA) 2% target, clocking in at 2.3%.
This limited any downside pressure on the Australian Dollar (AUD), with signs still pointing towards a rising level of inflation within the Australian economy.
With market risk appetite also heightened by the relative weakness of the US Dollar (USD), and the more dovish nature of recent Federal Reserve policymaker comments, support for AUD exchange rates remained solid.
New Zealand Dollar Falters as Food Prices Continue Contraction
The New Zealand food price index proved rather less encouraging, offering the AUD/NZD exchange rate additional support on Monday.
Prices continued to contract on the month in December, falling -0.8% as domestic inflationary pressures persistently failed to materialise.
Naturally, this prompted bets that the Reserve Bank of New Zealand (RBNZ) will leave monetary policy on hold for the foreseeable future, especially given the lingering sense of political uncertainty.
As analysts at Westpac commented:
‘In addition, the momentum in economic activity has started to fade, with GDP growth set to slow further over 2018.
To ensure inflation remains close to 2% against this backdrop, interest rates will need to remain low for some time.
We continued to expect that the Reserve Bank will delay hiking the Official Cash Rate until late 2019 (in contrast to financial markets pricing for rate hikes from early 2019).’
Rising Retail Spending Forecast to Boost NZD Exchange Rates
A change in fortune could be in store for the AUD/NZD exchange rate, however, if December’s retail card spending figure betters forecast this morning.
If consumers show increased signs of confidence, and a greater willingness to spend, this could offer the New Zealand Dollar (NZD) a solid rallying point.
While wider market confidence in the underlying health of the New Zealand economy is unlikely to improve even on the back of a strong showing this could still dent the AUD/NZD exchange rate.
However, any slowdown in spending may encourage fresh investor jitters over the domestic outlook, leaving NZD exchange rates on a weaker footing.
After the strong correction seen last week the New Zealand Dollar may struggle to find particular upside potential in the near future.
AUD/NZD Exchange Rate Gains Forecast on Steady Australian Unemployment Data
Increased volatility is forecast for the AUD/NZD exchange rate later in the week, though, with the release of the latest Australian unemployment data.
While the report is notoriously changeable in nature investors are hoping to see fresh evidence that the domestic labour market has continued to tighten.
Even though the unemployment rate is forecast to hold steady at 5.4% in December another decent headline employment change figure could boost demand for the Australian Dollar.
As long as the participation rate shows no signs of weakening then the AUD/NZD exchange rate is likely to experience limited downside on the back of the report.