Another big day for AUD and NZD

It has been another bad day for the NZ dollar as the market continues to turn against the once highflying commodity currency. Falling commodity prices and deteriorating growth and inflation outlooks have hit the kiwi hard. On Wednesday, NZDUSD fell below 0.8400 for the first time since March. Admittedly, some of the weakness in NZDUSD was due to widespread USD strength on the back of strong US economic data, but recent weak NZ PPI data, falling growth forecasts and soft commodity prices made NZDUSD the perfect target for USD bulls.

More fuel for NZD bears

Yesterday, the NZ dollar fell on the back of some disappointing NZ producer prices data and cuts to the government’s official growth forecasts. PPI Output and PPI Input fell 0.5% q/q and 1.0% q/q respectively in Q2. The soft numbers were largely the result of weak dairy prices and don’t bode well for inflation going forward, thus investors responded by selling the kiwi. Meanwhile, the government cut its growth forecast for the year ending March to 3.8% (prior 4.0%) and its fiscal surplus estimate to NZD297m (prior NZD372m).

Stevens inadvertently strengthens the aussie

Across the Tasman, RBA Governor Stevens gave his semi-annual testimony to the House Economics Committee. Stevens didn’t give much away, but he did reiterate the RBA’s longstanding message that it’s watching from the sidelines at the moment. The uncertain growth outlook and already accommodative stance of momentary policy is keeping the RBA on hold. Stevens admitted that rates could move lower if deemed appropriate, but he also added that the most important factor behind economic growth is confidence – something we focused on in our Q3 report – and it cannot be provided by lower rates alone.

On intervening in the FX market the Governor was fairly frank, when he stated that it was on the table and there would be no warning prior to the bank interfering in the FX market. However, Stevens noted that intervention was considered when the Australian dollar was much higher; implying that the current level of the exchange rate is not high enough to warrant intervention.

The comments from the RBA chief were taken to be less aggressive than they might have been, especially on the AUD. An ensuing small relief rally helped to push the Australian dollar higher. However, AUDUSD soon succumbed to the widespread USD strength sweeping through the market.

AUDNZD nears resistance

Nonetheless, the combination of AUD strength and NZD weakness has pushed AUDNZD towards a key resistance zone around the top of its long-term trading channel. A break here would be very bullish in our opinion and may precede a more substantial rally in the pair. Yet, there are some technical indicators which suggest that AUDNZD may bounce off this trend line (bearish divergence in daily RSI).