AUD/NZD: Prior to the Meeting RBA on 3 May
At the beginning of this week at the RBA left interest rate unchanged at the level of 2.0%. This level has been maintained since June 2015. However, the following up comments of the bank were aimed at lowering in the AUD. On the one hand, steady recovery of the Australian economy continues. On the other hand, high rate of the national currency is unfavourable for the Australian exporters and can impede recovery of the national economy. New Zealand’s economy is also export-oriented. About 18% of the total volume of exports accounts to dairy products.
Recent rise in the world prices of dairy products has supported the NZD (at the dairy auction on Tuesday price index has grown by 2.1%).
The largest trading partner of New Zealand and Australia is China. Although the demand for the Australian iron ore and liquefied gas can vary depending on the economic growth of China, the demand for agricultural and dairy products of New Zealand will always remain high.
In this respect the export component of the New Zealand’s economy is stronger than that of Australia.
At the beginning of March the RBNZ lowered interest rate by 0.25% to 2.25% amid concern of deterioration in the global economic growth and the increase of inflation expectations in the country.
However, by now, the decision of the RBNZ has been incorporated in the price of the NZD.
The next meeting of the RBNZ will be held at the end of April. It is expected that the RBNZ will continue to decline interest rate, but may happen in June or August.
At the same time, the RBA may reduce interest rate at the meeting on May 3. The Australian dollar is significantly overbought. Since the beginning of this year the pair AUD/USD has grown by 12%, reaching the new highs at the level of 0.7720 at the end of March.
It is possible that the RBA will reduce interest rate at the beginning of May.
If the RBA adopt the decision to reduce interest rate, the AUD will fall, as well as the pair AUD/NZD.
It is likely that up to the 3 May the pair AUD/NZD will be under pressure.