Supply closures from Hurricane Francine which is ravaging the Gulf of Mexico are another bullish factor. WTI is forming short-term bullish reversal patterns on the daily and weekly charts. USD/JPY remains under some selling pressure on Friday and hits a fresh YTD low. The divergent Fed-BoJ policy expectations continue to weigh heavily on the pair. Investors look to Fed and BoJ meetings next week for a fresh directional impetus. The Australian Dollar (AUD) received support as the Reserve Bank of Australia (RBA) Governor Michele Bullock has maintained a hawkish outlook, saying last week that it is too soon to consider rate cuts as inflation remains too high.
Why is the NZ dollar strong against the Australian Dollar?
The currency clawed back some of its steep declines during the final two months of 2023, and the outlook seems sunnier in the wake of the prevalent bearish sentiment surrounding the Greenback. The US Labor Department reported that Initial Jobless Claims for the previous week increased as anticipated, surpassing the previous week’s figures. Additionally, US factory inflation rose above expectations, driven by higher service costs.
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While Australia is currently experiencing favourable conditions for its minerals-heavy export basket, New Zealand’s agri-focused export performance has not been as good because of lacklustre conditions in the Chinese market. In the short term, analysts expect the AUD/NZD rate to rise to 1.12, largely because the RBA’s hawkish-for-longer stance will boost the appeal of the Australian dollar. The New Zealand dollar has been among the weakest performing major currencies in 2023, with the persistent downtrend attributable to several key factors. That variation has been evident over the last year, with the combination bouncing between 1.05 and 1.15 over that period.
This would help the NZD to appreciate against other currencies on narrowing yield outlooks,” said KCM’s Waterer. Another factor to consider is the impact of the technical recession in New Zealand. A deteriorating domestic economy could prompt global investors to seek more stable assets, leading to a weaker Kiwi dollar. Recessionary conditions could also prompt the RBNZ to bring forward its timeline for cutting rates, making the currency less attractive to foreign investors.
The pair are correlated given the similar position of both countries as commodity exporters, and typically trade in a similar way against other global currencies. Both are also suited to “risk-on” trade, thanks to each country’s high exposure to commodities exports to China and a sensitivity to global growth. The Australian (AUD) and New Zealand dollars (NZD) are two of the most-traded currencies in the global forex markets. The AUD/USD pair, also called the “Aussie”, tells the trader how many US dollars (the quote currency) are needed to purchase one Australian dollar (the base currency). Together with the New Zealand Dollar and the Canadian Dollar, the AUD is a commodity currency, that is a currency whose country’s exports are largely comprised of raw materials (precious metals, oil, agriculture, etc.). WTI Oil is rebounding off four-month lows on renewed expectations the Fed may cut interest rates by 50 bps.
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- The New Zealand dollar has been among the weakest performing major currencies in 2023, with the persistent downtrend attributable to several key factors.
- In the short term, analysts expect the AUD/NZD rate to rise to 1.12, largely because the RBA’s hawkish-for-longer stance will boost the appeal of the Australian dollar.
- Just a day later, the surprise RBNZ announcement that it was done with rate hikes completely reversed the momentum.
- Both are also suited to “risk-on” trade, thanks to each country’s high exposure to commodities exports to China and a sensitivity to global growth.
- As such, any recommendations or statements do not take into account the financial circumstances, investment objectives, tax implications, or any specific requirements of readers.
According to the CME FedWatch Tool, markets are fully anticipating at least a 25 basis point (bps) rate cut by the Federal Reserve at its September cryptocurrency broker canada meeting. The likelihood of a 50 bps rate cut has sharply increased to 41.0%, up from 14.0% a day ago. The AUD/USD pair appreciates as US data reinforce the likelihood of an aggressive Fed rate cut next week. The US Producer Price Index rose above expectations, driven by higher service costs.
The AUD/USD extends its upside for the third successive session on Friday as economic data velocity trade from the United States (US) reinforced the possibility that the Federal Reserve (Fed) could lower interest rates by 50 basis points next week. The European Central Bank is expected to cut key rates by 25 bps at the September policy meeting. ECB President Christine Lagarde’s presser and updated economic forecasts will be closely scrutinized for fresh policy cues.
Most analysts expect the Australian dollar to strengthen against the NZD over the next few months because the RBA is continuing to lift rates, or has not ruled them out, whereas the RBNZ has called an end to its rate hikes. The resulting yield differential could lift the AUD/NZD rate to 1.12 from 1.09 now. Just a day later, the surprise RBNZ announcement that it was done with rate hikes completely reversed the momentum. That trend was underscored after the RBA, by contrast, lifted its cash rate in Australia on June 6—and his continued to speak of a potential need for more tightening of monetary policy.
To the extent any recommendations or statements of opinion or fact made in a story may constitute financial advice, they constitute general information and not personal financial advice in any form. As such, any recommendations or statements do not take into account the financial circumstances, investment objectives, tax implications, or any specific requirements of readers. When covering investment and personal finance stories, we aim to inform our readers rather than recommend specific financial product or asset classes. While we may highlight certain positives of a financial product or asset class, there is no guarantee that readers will benefit from the product or investment approach and may, in fact, make a loss if they acquire the product or adopt the approach.
While we do go to great lengths to ensure our ranking criteria matches the concerns of consumers, we cannot guarantee that every relevant feature of a financial product will be reviewed. However, Forbes Advisor Australia cannot guarantee the accuracy, completeness or timeliness of this website. The current market pricing for a more aggressive policy easing by the central bank next year might have already set the stage for a disappointment and favours the USD bulls. This should allow the USD to resume the prior uptrend witnessed since July 2023 and keep a lid on a runaway rally for the AUD/USD pair. “Longer term, other central banks including the RBA will need to call a halt to the rate hiking cycle, similar to where the RBNZ is now.
This correlation with the Shanghai stock exchange is to be added to the correlation it has with gold. In the financial world, gold is viewed as a safe haven against inflation and it is one of the most traded commodities. Rising investor concerns about the risk to global growth have also played a role in the prolonged weak performance of the local currency, given the potential risk to Australia’s exports. However, global equities and other risk-assets have staged a recovery in recent months, allowing the AUD to make up some ground. Despite this, the AUD and NZD often display high levels of volatility against each other, offering lucrative opportunities for traders. The Australian Dollar (AUD) started 2023 on a high note, though slumped closer to its post-pandemic low against the USD during the latter part of the year.
Investors shift their focus to the Michigan Consumer Sentiment Index, which is scheduled for Friday. Bitcoin trades above $58,000 at the time of writing, adding 2% to its value this week. Ethereum hovers around $2,300 as WazirX exchange exploiter moves 5,000 Ether to a new wallet address and a crypto mixer. Another important factor would be an improvement in trade and economic conditions.
Despite a sharp rise in June, the AUD/NZD pair is currently trading midway through the range.