Top 4 Forex Trend Drivers for AUD and NZD This Year

If you’re a comdoll trader like Happy Pip, then you’d be interested to check out this rundown of events that pushed Aussie and Kiwi pairs around for the past 12 months:

1. Rate hike expectations

The Kiwi started the year on an upbeat note, as the RBNZ had a rate hike spree for four consecutive monetary policy decisions starting in March. At that time, the New Zealand economy was performing amazingly well, allowing the central bank to bring interest rates up from 2.50% all the way up to 3.50%.

As for the RBA, the announcement that policymakers weren’t looking to cut interest rates anytime soon was also enough to keep the Aussie supported early in the year. However, this language shifted to a more cautious tone later on, as Stevens and his men clarified that they’re not looking to hike rates soon either, emphasizing that a period of stability in interest rates is warranted.

2. Falling commodity prices

As they year dragged along, forex market watchers became increasingly concerned about the potential impact of falling dairy prices on the New Zealand economy. In fact, the downturn started in February and carried on for months, prompting Fonterra to cut its milk payout forecasts for farmers and suppliers.

Gold and other commodities also sank, as price pressures weakened across most economies. Towards the end of the year, gold prices suffered a sharper selloff, as the referendum on the Swiss gold initiative indicated that the SNB no longer needs to purchase huge amounts of gold bars to meet the proposed 20% holdings requirement. These contributed to AUD/USD’s slow grind lower during the latter half of the year.

3. Central bank jawboning

Deflation became a global concern sometime in Q3, prompting central bank officials to engage in currency wars. While some major central banks resorted to monetary policy easing partly to keep their respective currencies weak, the RBA and the RBNZ stuck mostly to jawboning.

In most of the RBA statements, Stevens repeated that the Australian dollar is trading at historically high levels that do not reflect fundamentals. This kept the Aussie’s gains in check, as forex traders were wary of central bank intervention. In fact, the RBNZ did stage another secret intervention in August to prevent the New Zealand from rallying too much.

4. China’s economic performance

Apart from affecting overall market sentiment, China’s economic performance played a key role in dictating Aussie and Kiwi trends. After all, Australia and New Zealand are export-driven economies relying mostly on commodity shipments to China, the world’s second largest economy.

Speculations of an ongoing slowdown in China, spurred by weakening manufacturing PMI readings, led to downgraded trade estimates for Australia. While Chinese officials claimed that this was the “new normal” in the Chinese economy, the PBoC’s surprise easing announcement in November confirmed that policymakers are getting worried about the fate of their economy.

Now here are the charts to show how these events sparked strong trends for AUD/USD and NZD/USD. Did you catch any of these big moves?

AUD/USD Daily Forex Chart

AUD/USD Daily Forex Chart

NZD/USD Daily Forex Chart

NZD/USD Daily Forex Chart

Moving forward, these market factors might continue to impact Aussie and Kiwi movements early next year, as the economic landscape hasn’t changed that much. Monetary policy biases, commodity prices, and Chinese economic performance could spur extended trends in the next few months so make sure you keep tabs on these!

  • ForExchange

    Hi Forex Gump,

    I really liked the charts in the end and the fundamental reasonings. I have one problem where I would like to read your opinion. I have fundamentally two different stories for NZD and AUD which is hard to occur as they are correlated.

    The NZD in my opinion is still one of the stronger currencies with the potential of tightening in the future. Dairy prices started raising again and economic numbers are strong.

    On the other side, AUD became a weakness story. Talks are about rate cutting and economic slowdown for the reasons you mentioned. Maybe this possible rate cut was the only missing point in your analysis.

    So the question is if these two currencies can have a different path or is that only a wild imagination?

    FE

    • Thanks for sharing your thoughts as always! I’m thinking that both currencies have been weighed down by the weakness in China over the past year (more directly related to AUD then spilled over to NZD) and that the potential RBA rate cut might be more of a story for this new year. I do agree though that NZD seems to be in a fundamentally stronger position compared to AUD, especially since the latter is more positively correlated to commodity prices, which have also been falling recently. Let’s see how their respective stories pan out for the next few months, but with this bias I think AUD/NZD might definitely be worth playing.

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