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    AUD/NZD: Following the decision of the RBNZ on 10.03.2016

    On Wednesday RBNZ suddenly decreased interest rate by 0.25% up to 2.25%. As reported in the following comments, Central Bank is concerned about further deterioration of the global economy. Bank’s fears are also associated with slowdown of the economic growth in China, decline in the dairy industry in the country and inflation expectations. Trade-weighted rate of New Zealand dollar is 4% above the forecast of December.

    In view of the decrease in the commodity prices and in the volume of New Zealand’s exports, the decline of the national currency “will be justified”

    In respond to the decision by RBNZ, the NZD fell in the market, including AUD. Yesterday, the pair AUD/NZD rose by 220 points, volatility per hour amounted to 200 points.

    It seems that AUD looks like the only currency among the other commodity currencies, which maintains its positions. Since May 2015 RBA has kept interest rate at the level of 2%, while other Central banks systematically reduce exchange rate of their national currencies.

    Some banks, like the Bank of Canada openly discuss probability of negative interest rate on deposits. Prospects of the world economy are worsening and prices of commodities are declining. In Australia, boom in the mining sector has approximately reached zero, prices of iron ore and volumes of Chinese imports from Australia are decreasing.

    The rise in AUD up to 8-month highs makes exporters feel alarmed and economists warn that strengthening in the currency can upset delicate recovery of the Australian economy.

    According to some estimates, the Australian dollar is overvalued by 10%. And, according to John Edwards, member of the Board of the RBA, the fair exchange rate is close to the level of 0.6500. The sharp strengthening of the national currency can force RBA to make a decision to lower interest rate. The nearest meeting of the RBA is scheduled for April 5.

    Taking into account the dramatic growth of the pair AUD/NZD in the last days when the pair has reached key resistance levels, as well as the strong imbalance in spreads of quotes of the AUD and NZD against the USD, it is possible that the price will pullback from the current levels in the downward trend. In addition, the temptation to join the General trend of the world's Central banks in easing monetary policy in order to support economies of their countries will increase with the further growth of quotes of the Australian dollar.


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