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NZD/AUD at 3-Week High - New Zealand Dollar Supported

Published: 5 Feb at 12 PM Tags: Pound Sterling, Euro Exchange Rate, Dollar Exchange Rate, Australian Dollar Exchange Rate, New Zealand Dollar Exchange Rate, Currency Exchange, Forex, Euro Crisis, Exchange Rates,

The New Zealand Dollar has experienced considerable volatility this week, posting notable declines following the Reserve Bank of Australia’s interest rate decision but then recouping losses following a successful dairy auction. After the Reserve Bank of Australia (RBA) opted to cut its benchmark rate by 25 basis points to a new record low of 2.25%, bets that the Reserve Bank of New Zealand (RBNZ) could be planning to follow suit drove the ‘Kiwi’ lower and the South Pacific currency plummeted against the Euro, Pound and US Dollar.

However, after the latest GlobalDairyTrade auction showed a 19% increase in dairy prices, the New Zealand Dollar was driven higher. Dairy produce is New Zealand’s biggest export and last year’s drop off in prices undermined demand for the ‘Kiwi’, so this improvement was well received. Economist Con Williams noted; ‘It seems the dry conditions in New Zealand and continued reduction in supply to be offered through GDT over the next six months has finally swung market sentiment.’
Additional New Zealand Dollar gains were recorded after Reserve Bank of New Zealand Governor Graeme Wheeler intimated that the central bank intends to keep interest rates on hold for the foreseeable future, stating ‘A period of OCR stability is the most prudent option’. Wheeler implied that a rate cut would only be considered if the global/national economic situation deteriorated rapidly. Although the central banker did indicate that the New Zealand Dollar is significantly overvalued and that its current exchange rate is ‘unjustified and unsustainable’, the rate hints gave the currency a boost.

On Thursday the New Zealand Dollar continued trading in the region of a three week high against the Australian Dollar and held gains against the US Dollar. The ‘Kiwi’ received further support from the news that the People’s Bank of China intends to implement additional stimulus measures to bolster growth in one of the world’s largest economies. In the view of currency strategist Imre Speizer; ‘The market is biding its time ahead of the [US] payroll number and that's going to determine the direction of the US Dollar.’ A strong US employment number would undermine demand for the New Zealand Dollar, but a below forecast result would push back Federal Reserve rate hike expectations and could help the ‘Kiwi’ extend gains.