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Weekly roundup: RBA caution softens AUD, NZD tumbles as election ends with hung parliament

currency-newsWeekly roundup: RBA caution softens AUD, NZD tumbles as election ends with hung parliament
The Australian monetary policy outlook and New Zealand’s political outlook were in focus last week. The Reserve Bank of Australia (RBA) doesn’t seem to want to join in with the global shift towards more optimistic projections for interest rates, while markets are today coming to terms with the fact New Zealand has been left with a hung parliament after the weekend’s vote.

Markets were still somewhat concerned by the ever-increasing military tensions between the US and North Korea at the start of the week, which kept the Australian dollar on soft form. Strong New Zealand data helped NZD to climb sharply, however.

The Reserve Bank of Australia started the week with some positive remarks on the health of the Australian economy, boosting demand for AUD. However, this changed later in the week when RBA Governor Philip Lowe gave a speech that suggested a rate hike was still a considerable way away. He maintained that the RBA is not going to be prompted to enter a tightening cycle just because the central banks of other major economies appear to be shifting in that direction.

Meanwhile, a rise in dairy prices during the latest global auction towards the beginning of the week helped to prop up the New Zealand dollar. Prices rose nearly 1% - the strongest increase in winning bids since the middle of May.

Both AUD and NZD took a hit towards the end of the week after the US Federal Reserve announced that it would begin to taper its balance sheet and pointed to another interest rate hike in December. This cooled demand for risky currencies.

The New Zealand dollar saw repeat periods of weakness over the past seven days as markets anxiously awaited the General Election, which took place over the weekend. Labour was enjoying strong support in the polls – something that worried investors as right-wing governments tend to be perceived as better economic stewards.

As the polls have resulted in a hung parliament, and both parties now have to court favour from the nationalist New Zealand First party to form a coalition, NZD could continue to be plagued by political uncertainties this week as well.

There is nothing much on the Australian data calendar until a speech from the RBA’s Guy Debelle on Thursday. The key event of the week for NZD will be the latest interest rate decision from the Reserve Bank of New Zealand (RBNZ), which will be announced on Wednesday evening.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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