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Whats happening to the NZD against the AUD this week?

Written by Sam Coxhead on August 25th, 2011.      0 comments

12:00 PM (NZT) A quick update for you on the fortunes of the NZD/AUD so far this week.  
Another tight range, with .7852-.7954 (AUD/NZD 1.2572- 1.2734) covering it so far in the interbank market, a range of just a shade over 1%.
Whilst the current “risk on risk off” appetite continues to see periods of high volatility in the financial markets globally, once again the AUDNZD remains one of the most stable currency pairings. This is because the AUDUSD and NZDUSD both trade very much in tandem, when the prevailing market risk appetite is the key driver.
Direction from here, as per usual, will be dictated by the expected interest rate differential between Australian and New Zealand. As was the case last week , the market continues to price in a 100 point cut in Australian interest rates, by the end of the year. However the divergence remains between this market held view and pricing, and the prevailing apparent stance of the Reserve Bank of Australia (RBA). Their stance suggests the market has got way ahead of itself, by pricing in these interest rate cuts. If the prevailing market pricing is proven to be incorrect, the AUD will likely appreciate.  
However it’s the Australian economic performance, and of course the global economic performance, that will determines the RBA interest rate setting levels. If the global economy (and more importantly the Asian one), performs well, Australia, and therefore New Zealand will benefit. If the opposite is the case, both economies will suffer. Therefore both interest rate policy settings of the respective reserve banks, will reflect a similar story, to a degree.
Whilst this currency pair will more than likely continue to trade a tight range in the short term, with the current interest rate market pricing in Australia placed as it is, a move higher in the AUDNZD, currently looks more likely than a move lower.  In the absence of that move, the interbank range of 1.2500 - 1.2800 (NZDAUD .7812 - .8000), seems set to contain it for the time being.
Just released NZ retails sales numbers were better than the forecast +.7% at +.9%, this caused a slight appreciation in the NZD, but was a small move in the overall scheme of things.
Currently in the interbank market we are trading at .7914 (AUD/NZD 1.2635)