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NZD News: Kiwi dollar yoyos this week after Aussie interest rates and Kiwi employment data is announced

8th February 2019

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!


What goes up must come down 

The high against the AUD was short lived after weaker than expected employment figures were announced on Thursday. Markets were expecting the unemployment rate to be 4.1%, so you can understand the disappointment when it came in at 4.3%. To add salt to the wound, September’s figure of 3.9% was revised to 4%. 
This data revived the possibility that the NZ Reserve Bank may cut interest rates soon. An interest rate cut is not good news for the Kiwi dollar, as investors seek a greater return in other countries with higher rates. 
Markets did not react in the NZD’s favour after these figures were announced, as shown in the above graph where its value dropped significantly yesterday from 0.9384 to 0.9294. 
As Senior Client advisor at Bancorp Treasury Services, Peter Cavanaugh said, “the jobs data gave the local markets a big ouchie”. 

Humpty Dumpty is still homeless due to lack of wall in the USA

The resumption of the US government shutdown is quickly approaching, with a February 15th deadline in play. In other words, the Republicans and Democrats have one week to come to an agreement about the infamous border wall between the USA and Mexico, or the government shutdown will resume. 
President Trump reiterated his desire to build a wall to increase border security during his State of the Union address earlier this week. 
Agreement on the issue seems a fair way off, however, there is still time for a vote next week ahead of the Feb 15 deadline.  During an interview this week, acting White House Chief of Staff Mick Mulvaney said that if Congress doesn’t agree to President Trump’s request for $5.7 billion for a wall, “we’ll figure out a way to do it with executive authority”. 
Anyway, the fact that Mulvaney has mentioned putting ‘executive authority’ into play means the government is not scared of calling a National Emergency to get the wall done. 

China and the USA have thrown away their friendship bracelets

As it stands, on March 1, the Trump administration is scheduled to more than double the current tariff rates on US$200 billion worth of Chinese exports into the US. 
Delegates from both the US and China have been meeting to secure a trade deal to avoid this happening, with Trump and President Xi Jinping supposed to meet prior to this month. A senior administrator official has stated that it’s “highly unlikely” that this meeting between the leaders will take place.
There is still a lot of work required before a deal will be made, with rules on intellectual property theft and state support for high-tech and industrial industry companies proving to be the biggest sticking points in the negotiations. 

Brexit is still a thing

British Prime Minister Theresa May's mission to Brussels to discuss amendments to the current divorce agreement ended with no sign of a compromise. Honestly, this is just not fun for anyone involved. 
This will force May and senior EU leaders back to the negotiating table to try and break the impasse. On February 13, PM May is scheduled to update British Parliament on the status of her efforts to unlock her Brexit deal. 
As the March 29 deadline approaches, there is still no certainty that Britain will avoid crashing out of the EU with a no deal - the default option, should an agreement not be reached. 
The level of uncertainty surrounding Brexit has pushed the Bank of England to reduce their UK economic growth forecast in 2019 to 1.2%. This would be England’s slowest rate of growth since the financial crisis in 2011. 
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All rates are quoted from the Travel Money NZ website, and are valid as of 8 February 2019
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