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New Zealadn dollar vrs Australian dollar

Written by Andrew Isbister on August 12th, 2011.      0 comments

5:15 PM (NZT) Late Monday saw risk aversion levels at the highest point of the week, as equity markets were crushed. Both the AUD and NZD took a dive relative to the USD as a result, with AUDUSD to sub 1.000, and NZDUSD briefly to sub .8000. So at that point, both were basically 10% lower than their all time highs, posted in recent weeks.
 
Rumors (that proved incorrect) that Standard and Poor’s were set to down grade French Govt debt, and that several French banks were in trouble, saw the markets in chaos.
 
However as the week has worn on, tough talking rhetoric from numerous Govt. officials on both sides of the Atlantic, have calmed the markets to some extent, with a bounce in equity markets and a return to some degree of the markets appetite for risk seen in the last 24 hours. As a result both AUDUSD and NZDUSD have bounced back about 3%.
 
This will no doubt be short lived, if the subsequent tough decisions needed are not made and acted upon quickly. Given the severity of the issues at play, and the fact that there are no quick or easy fixes (if there were we wouldn’t be in this mess), then the current “risk on risk off” trading mentality, with the subsequent massive swings in equity and currency markets, will continue for some time.
 
In terms of AUDNZD, this currency pair has again been one of the most stable in terms of a trading range, given that as noted above, both move in tandem against the USD to a large extent. Yesterdays Australian unemployment data was marginally weaker than expectation. However comments from China a short time later were seen as supportive of growth, and so the AUD gained a full head of steam relative to the NZD with the AUDNZD posting an almost immediate full two cent gain to the weeks highs. This is because whilst growth in Chins benefits the NZ economy, the Australian economy benefits the most.
 
The range on the week in the interbank market has only been approximately 1.2330 – 1.2600 (NZDAUD .7936 - .8110). In percentage terms, at 2%, this is of course a very tight range when compared to many other cross currency pairs.  
 
Next week will continue to be dominated by the markets risk appetite, but again, the AUD and NZD will largely move in tandem against the USD, so more than likely the AUDNZD will remain relatively stable.
 
Next week is extremely light on domestic date, with only Australian RBA Monetary Policy Meeting Minutes due for release on Tuesday, and NZ  Producer Price Index data on Wednesday. Obviously the RBA minutes will be closely looked at for a bead on the RBA’s future interest rate moves, and therefore the likely level of the AUDNZD, given it is the interest rate differential between the two countries , that continues to be the biggest driver of this currency pair.
 
As I write we are currently trading in the interbank market at AUDNZD 1.2502 (NZDAUD .7998)
 

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