AUD/NZD Exchange Rate Slides on Wages-to-Inflation Imbalance
The Australian Dollar has fallen by -0.4% against the New Zealand Dollar recently, following a mixed reaction to the latest AU wage price index figures.
Although the Q4 wage price indexes rose by more than expected for the quarter-on-quarter and year-on-year readings, the Australian Dollar remains in low demand.
This is mainly because traders are worried about the fact that the rate of inflation remains close to the pace of wage growth.
Callam Pickering of employment website Indeed has forecast that there could be a long wait before wage growth accelerates, stating;
‘Economy-wide there remains a high degree of slack in the labour market.
Any improvement in wage growth will be gradual and it could take a number of years before wage growth gets back to 3%.
Anyone hoping for a wage breakout will unfortunately be disappointed.
Private sector wages have barely kept pace with inflation despite improved business conditions and strong growth in corporate earnings’.
Mr Pickering has further lowered trader confidence in the Australian Dollar by adding that;
‘In the current environment, low wage growth continues to point towards weak inflation and makes it difficult for the Reserve Bank to justify higher interest rates.
Until wage growth improves, the RBA will be more than happy to leaves rates unchanged’.
Sliding Construction Output Levels Drag Australian Dollar to New Zealand Dollar Exchange Rate Lower
Another factor lowering the Australian Dollar’s value of late has been the construction output reading for Q4, which has shown a quarter-on-quarter drop of -19.4%.
This sharp downwards spike has been observed pragmatically by Commonwealth Bank officials, who don’t believe that this result will influence Q4 Australian GDP.
Elaborating on this outlook, Commonwealth’s Senior Economist, John Peters, has said;
‘Q4’s dive in construction work done as the liquefied natural gas (LNG) platform dropped out of the numbers will have negative impact on Q4 GDP via the private investment component.
But this will be offset by a better net exports component of GDP as the importation of the LNG platform disappears’.
New Zealand Dollar to Australian Dollar Exchange Rate Advances on TPP Hopes
The New Zealand Dollar has appreciated against Australian Dollar and peers such as the Pound and Euro recently, thanks to trader optimism about international trade.
It has been estimated that the Trans Pacific Partnership (TPP) trade deal could add up to NZ$4bn to the economy under the best conditions.
This multinational agreement faced failure in early 2017 when the US withdrew from the deal, but has since been revived by remaining members.
A government-sourced report has further praises the benefits of TPP by estimating that the NZ economy would shrink by around NZ$183m without the deal.
Australian Dollar to New Zealand Dollar Exchange Rate Outlook: AUD/NZD Volatility ahead on Fed Minutes Release
Before the weekend, AUD/NZD exchange rate movement is likely to be triggered by US Dollar fluctuations.
The US Dollar could appreciate on the content of incoming Federal Reserve meeting minutes; this may weaken both the Australian Dollar and New Zealand Dollar.
To a lesser extent, the AUD/NZD pairing could also be affected by NZ retail sales figures, which will come out on Friday morning.
Sales growth is predicted to have picked up sharply in Q4 2017; such a result could inspire an NZD/AUD exchange rate rise.