Dip in Service Sector Activity Prompts NZD/AUD to Slide
The Australian Dollar New Zealand Dollar (AUD/NZD) exchange rate trending higher on Monday as New Zealand’s services PMI slipped.
At the time of writing AUD/NZD is up 0.55%, with the pairing having recovered from a drop at the start of the week’s session.
New Zealand Dollar (NZD) Weakened by Dip in Services Index
The New Zealand Dollar was forced to cede some ground against the Australian Dollar on Monday as the domestic Services PMI unexpectedly slid.
The BNZ-Business NZ performance of services index fell was shown to have dipped from 56 to 55.8 in January, disappointing those who expected it to remain unchanged.
While this was only a very moderate drop in activity, the drop in the employment sub-index was a concern for many observers.
Analysts from Bank of New Zealand, who compiled the report suggested that the slide in employment was driven by caution towards the new Labour government and what economic impact its policies may have.
The bank also warned that when combined with the recent manufacturing PMI the services index could signal a slowing in GDP in the short-term.
Craig Ebert, senior economist at NZ said;
‘While the PSI is relatively robust, combined with the performance of manufacturing index it nonetheless signals something of a slowing in GDP growth for the near term.’
Australian Dollar (AUD) Weakened by Gloomy Growth Forecast
However despite pushing higher overnight on Monday it wasn’t all sunshine and rainbows for the Australian Dollar at the start of this week’s session either.
The ‘Aussie’ suffered in early trade as analysts from Westpac bank argued that the Reserve Bank of Australia’s (RBA) forecasts of 3% growth over the next two years is too optimistic.
Instead Westpac analysts forecast more modest growth of around 2.5% as weak wage growth and high levels of household debt likely weigh on consumer spending over the next couple of years.
AUD/NZD Forecast: Continued Uptick in Dairy Prices Likely to Bolster ‘Kiwi’
Looking ahead the AUD/NZD exchange rate may be forced to relinquish some of Monday’s gains late on Tuesday, following the latest Global Dairy Auction.
With dairy accounting for around a quarter of New Zealand’s exports, another strong rise in prices at the auction is likely to help drive the ‘Kiwi’ to rally.
Meanwhile the Australian Dollar may tumble earlier in the session with the release of the minutes from the RBA’s latest policy meeting.
As the RBA signalled at its policy meeting that it is no rush to raise interest rates this year, it is unlikely that the minutes will provide much support for the ‘Aussie’.