The Australian dollar and the New Zealand dollar during the last year were the worst performing currencies from among the world`s major currencies - apart from the British pound due to the uncertainty about brexit. Nevertheless, AUD and NZD are trying to get back into shape lately.
Over the past year, the Australian dollar has lost over 5.5 percent to the US dollar, and the New Zealand dollar has lost more than 2.6 percent, and the depreciation of mentioned currencies has increased in the first half of this year. One of the main factors was the increase in expectations of market participants regarding interest rate cuts in both Australia and New Zealand. A drop in interest rates may cause that the currency to become less attractive to invest, and this in turn may increase its supply on the market.
Investors were not mistaken about the easing of monetary policy. In New Zealand, in May the RBNZ decided to cut the main interest rate by 25 basis points to a record low of 1.5 percent. In turn, the RBA cut the main interest rate at the beginning of June to a record low of 1.25 percent. At that time, the interest rate market assumed further easing of monetary policy in both countries. However, recent statements can dismiss cuts in time.
The Governor of the Reserve Bank of Australia said at the beginning of the week that there are limits to the further easing of monetary policy and what can be achieved thanks to this. He added that markets are pricing in interest rate cuts in major economies, but it is unlikely that interest rate cuts would be as effective as in the past. Meanwhile, in a statement to today's decision of the Reserve Bank of New Zealand, it was said that interest rates may fall over time. It was less dovish statement than what the market expected, as according to yesterday's odds, interest rate cuts were expected to take place already in August.
In conclusion, the less dovish central banks of Australia and New Zealand, while awaiting the July cut of interest rates by the US Federal Reserve may cause a rebound in the Australian and New Zealand dollar.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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