In foreign exchange markets, the Australian and New Zealand dollar currencies are highly correlated. Given recent sentiment, it was no surprise, then, to see both make fresh multi-year lows on Thursday. Market commentators see little changing for the Antipodes in the near term.
At respective rates of 70.8 US cents and 64.9 US cents, the Australian dollar and New Zealand dollar currencies are now worth less than at any time since February 2016. Both were worth 15 percent more as recently as January.
It’s not only against a yield-driven US dollar that the Antipodes are suffering. The Australian dollar traded on Thursday at an eight-year low versus the Canadian dollar, and both the Aussie and kiwi traded at three-year lows versus the Norwegian krone. Even against their Asia-Pacific peers, valuations are falling sharply: both fell to long-term lows against the Singapore dollar and to nine-year lows versus the Thai baht.
With many of the world’s central banks either enacting or considering higher interest rates (among the FX G10 countries, Norway is the latest to jump on the higher-rates bandwagon), the inactivity of Australia and New Zealand’s Reserve Banks provides sufficient incentive to exchange local currency, which in turn drives valuations lower.
And still, economic data is falling short of investors’ expectations, which bodes even less well for the interest rate outlook. August’s building approvals for Australia, released on Wednesday, were down nearly 10 percent. For New Zealand, dairy prices fell again on Tuesday, for the eighth auction in the past nine.
As reported recently on BER, outlooks for these currencies for 2019 are far brighter than those for the fourth quarter of this year. Until Christmas, those in Australia and New Zealand might need to become accustomed to seeing their money reside among the whipping boys of the foreign exchange market.