The latest Australian trade data proved disappointing, leaving the Australian Dollar New Zealand Dollar (AUD/NZD) exchange rate on a weaker footing.
Investors were not impressed to find that the trade surplus was narrower than forecast in May, with April’s figure also seeing a downward revision.
June’s Australian services PMI also fell short of expectations, weakening from 55.9 to 52.7 as growth within the sector eased.
However, the New Zealand Dollar struggled to particularly capitalise on this AUD weakness thanks to the similarly discouraging nature of day’s New Zealand data.
Solid Australian Retail Sales Fail to Boost AUD/NZD Exchange Rate
Although May’s Australian retail sales data proved more positive in nature this failed to shore up AUD exchange rates on Wednesday morning.
As Matthew Hassan, research analyst at Westpac, commented:
‘Markets had been expecting a 0.3% rise. April’s 0.4% gain was also nudged up to 0.5%. Annual growth remained subdued at 2.5%.
‘A rebound in clothing and department stores drove the gain with weak conditions across other categories.
‘This rebound may be weather-related – clothing retailers reported some improvement in recent months after abnormally warm weather in the early part of winter weighed on sales through March-April. Retail ex clothing and department stores was flat in the month.
‘Overall, the May survey detail is not as positive as the headline figure suggests. A lacklustre consumer, competitive pressures and price discounting still look to be clear headwinds for the retail sector.
‘Looking forward, price discounting may ease a touch with the introduction of GST on low value imported goods from July 1, which will affect the pricing and availability of offshore based online retail competitors. However, the housing slowdown is likely to have some dampening impact on spending as well.’
Concerns remain over the outlook of the domestic economy, particularly in the face of mounting global trade tensions.
With the US and China poised to impose tariffs on billions of Dollars of imports investors are still jittery over the future of the global economy.
Falling metal prices and a general decline in market risk appetite have weighed heavily on the Australian Dollar and are likely to keep AUD exchange rates under pressure in the near term.
Falling Commodity Prices Limit New Zealand Dollar Exchange Rate Gains
Demand for the New Zealand Dollar was rather muted in the wake of a sharp drop in prices at the Global Dairy Trade auction on Tuesday.
Investors were further discouraged as June’s ANZ commodity price index slumped sharply on the month, contracting -1.0% in the face of mounting global trade tensions.
This undermined confidence in the outlook of the New Zealand economy, suggesting that the Reserve Bank of New Zealand (RBNZ) will maintain a dovish position on monetary policy for some time to come.
Analysts at ANZ noted:
‘We certainly find it hard to get upbeat here especially with one of the last legs of support – export commodity prices – now looking shaky too, but some technical indicators are suggesting NZD/USD is oversold and we do wonder when heading into US holidays and the Northern Hemisphere summer whether positions will be lightened.’
Even so, the New Zealand Dollar was able to make modest gains against the Australian Dollar thanks to its more limited exposure to trade war risks.
As the New Zealand economy is likely to suffer less spill over from any Chinese slowdown, as opposed to the Australian economy, the downside potential of NZD exchange rates is a little more muted.
A lack of fresh New Zealand data could see the AUD/NZD exchange rate recover ground ahead of the weekend, however.
If market risk appetite deteriorates further the appeal of the New Zealand Dollar is likely to diminish, especially if Friday’s US labour market data proves stronger.
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TAGS: Australian Dollar Forecasts