This week has proved interesting for the Kiwi dollar. Despite its value coming in slightly lower than this time last week, Wednesday saw it reach an 18 month high against the Aussie dollar.
The table below details today’s rate and provides a comparison for exchanging $2000 NZD vs. exchanging the same amount last Friday.
As you can see, there is a significant difference, and this is just in the space of a week. If you’re kicking yourself because you didn’t exchange last Friday fear not. Simply add Rate Guard to your purchase in-store and, should the rates improve within 14 days of purchase, we will refund you the difference*.
Let’s take a look at what’s happened in global markets this week to see why this downturn in the NZD has occurred (and why there was a surge against the Aussie dollar).
Australians were not all rejoicing
On Tuesday. the Reserve Bank of Australia kept their interest rates on hold for the record-breaking 30th month in a row.
Throughout most of 2018, the vast majority of financial commentators (and the market) thought the next move would be an increase in interest rates. This narrative started to change towards the end of the year when a few commentators starting suggesting the next move would be a decrease.
On Wednesday, Reserve Bank of Australia (RBA) governor Philip Lowe stated in a speech that, "looking forward, there are scenarios where the next move in the cash rate is up and other scenarios where it is down. Over the past year, the next-move-is-up scenarios were more likely than the next-move-is-down scenarios. Today, the probabilities appear to be more evenly balanced."
This statement triggered a more aggressive downside pricing of interest rates. There is now a 50% chance of a cut by August 2019, and a 100% chance of a cut by February 2020.
This new market pricing and change in narrative put significant downward pressure on the value of the AUD against most major currencies, including the NZD. As you can see in the below chart, on Tuesday 1 NZD was buying 0.9335 AUD. On Wednesday, this shot up to 0.9384, or almost $10 when exchanging $2,000NZD. That’s a beer (or two during happy hour) at the pub!