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AUD/NZD forecast: Australian dollar dominating its Kiwi peer on the back of aggressive RBA stance

By Kathryn Davies

Edited by Vanessa Kintu

15:03, 14 September 2022

Signs on a post pointing towards Australia and New Zealand
The Australian dollar is also known as the Aussie, while the New Zealand dollar is sometimes called the Kiwi - Photo: xtock / Shutterstock

The Australian dollar to New Zealand dollar (AUD/NZD) exchange rate rallied over 5% across the year and over 10% across the past 12 months. The AUD strengthened, despite both the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ) hiking interest rates and both currencies being affected by the slowdown in China.

Read on for the latest AUD/NZD news and analysts’ forecasts for 2022 and beyond.

How has AUD/NZD moved so far this year?

AUD/NZD started 2022 at 1.0625 and has steadily climbed higher across the year. The pair has traded above 1.0950 since May.

The Australian dollar continued to strengthen against its New Zealand counterpart, hitting a high of 1.1255 on 26 August 2022, a level that was last seen almost five years earlier in October 2017. The pair eased back slightly from the high, dropping over 100 pips to 1.1115 before once again pushing back over 1.12.

What influences AUD/NZD?

The Australian dollar, also known as the Aussie, is the official currency of Australia. The New Zealand dollar is the official money of New Zealand, and is often referred to as the kiwi. Both are called commodity currencies because their values are closely tied to the price of the commodities that each country produces and exports.

Commodity currencies are at the other end of the risk spectrum from safe haven currencies, such as the US dollar (USD). When the market mood sours and risk aversion dominates, demand for safe havens rises and demand for commodity currencies such as AUD and NZD falls. When risk appetite increases, demand for commodity currencies rises and safe-haven demand falls.

Australia’s main exports include ores, gold, meat, chemicals and grains. Its largest trading partner is China, which means that economic developments in China also affect the Aussie. 

New Zealand’s key products for export and trade are metals, ores, wool, cattle and meat. In all, 29% of total exports go to China, so the NZD is also influenced by China’s economic outlook. Tourism is also central to New Zealand’s economy.

The pair has traditionally moved in a closely synchronised fashion, given that they are broadly affected by the same market forces. However, this year’s aggressive central bank action from the RBA and increasing concerns over the health of the New Zealand economy has seen the pair grind higher to a five-year peak.

Historical AUD/NZD rate performance

At the start of 2010, AUD/NZD was trading around 1.27. The pair continued rising to a peak of 1.3792 in April 2011 before steadily declining across the following years, hitting parity on 1 April 2015.

The Australian dollar strengthened, taking the pair to 1.1450 by July 2015. The AUD/NZD then traded in a horizontal pattern until September 2021, capped on the upside at 1.1270 and on the downside at 1.02, only occasionally coming out of these limits.

Since September 2021, when it traded at 1.03, the pair has steadily risen.

AUD/NZD 5-year historical price chart

What has been driving the AUD/NZD higher?

The RBA and resilient consumer spending

The RBA raised interest rates in September for the fifth month in a row, taking the key lending rate to 2.35%, its highest level in seven years. 

The central bank agreed on a 50 basis point rate hike and is expected to continue hiking interest rates to bring inflation back to the RBA’s 2%  to 3% target level.

Inflation is currently at 6.1% and is expected to rise to 8% by the end of the year. Meanwhile, economic growth in Australia remains strong. Australian gross domestic product (GDP) grew 0.9% in the second quarter, driven by a boom in exports and as households kept spending despite the substantial rise in prices. The strong Australian consumer is one of the reasons that the Australian economy could absorb more aggressive rate hikes.

Australian GDP chart

However, headwinds are expected to rise in coming quarters as wages fall in real terms. Growth in China, Australia’s largest export market, has faltered amid more lockdowns. The strict zero-Covid-19 policy in China is once again slowing growth, while the economies of other trading partners are also slowing as interest rates rise.

AUD/USD_zero

0.66 Price
-0.530% 1D Chg, %
Long position overnight fee -0.0074%
Short position overnight fee -0.0008%
Overnight fee time 21:00 (UTC)
Spread 0.00006

EUR/USD

1.08 Price
-0.510% 1D Chg, %
Long position overnight fee -0.0080%
Short position overnight fee -0.0002%
Overnight fee time 21:00 (UTC)
Spread 0.00006

AUD/USD

0.66 Price
-0.530% 1D Chg, %
Long position overnight fee -0.0074%
Short position overnight fee -0.0008%
Overnight fee time 21:00 (UTC)
Spread 0.00006

GBP/USD

1.27 Price
-0.460% 1D Chg, %
Long position overnight fee -0.0046%
Short position overnight fee -0.0036%
Overnight fee time 21:00 (UTC)
Spread 0.00013

The RBA Governor acknowledged these risks and hinted at a slower pace of rate hikes going forward, saying:

“All else equal, the case for a slower pace of increase in interest rates becomes stronger as the level of the cash rate rises.”

According to Bloomberg, money markets are pricing in a cash rate of 3.1% by the end of the year and a 3.5% rate around mid-2023. RBA governor Philip Lowe said there would be at least two more rate hikes to tame runaway inflation.

RBNZ and a slowing economy

The RBNZ was one of the first central banks from a developed nation to start raising interest rates and has now hiked rates seven times over the past 10 months. The most recent hike in the August meeting was 50 basis points, marking the fourth straight outsized hike. This has taken the official cash rate (OCR) rate to 3%, as the RBNZ tackles sky-high inflation of 7.1%.

However, the RBNZ could be approaching the end of its aggressive tightening cycle. RBNZ governor Adrian Orr highlighted signs that consumption is starting to cool in the economy. In a Bloomberg TV interview, he said:

“We’re watching for signs where we can be confident we are slowing the economy, and confident that that is credible and feeding into inflation expectations,” Orr said. “We’re seeing the beginning of that quite strongly. I do feel confident we’re on top of it.”

Retail sales fell 2.3% year-over-year (YOY) in the Q2, the second straight quarterly decline, raising the chances of New Zealand tipping into recession. This starkly contrasts with Australian retail sales, which jumped 1.3% month-over-month (MOM) in July as consumer demand remained strong, giving the RBA more flexibility to keep hiking rates.

A cooldown in New Zealand is also evident in the housing market, where prices had surged 30% in 2021 as part of the pandemic housing boom. However, interest rates and mortgage costs rose and house prices were down 11% in July from the November 2021 peak.

With regards to the tourist industry in New Zealand, it is slowly starting to recover after the country sealed itself off from the rest of the world for the best part of two years through Covid-19. For the first month since the pandemic, overseas visitors exceeded 100,000. This was well under 255,600 in the equivalent month in 2019.

Finally, New Zealand’s trade deficit widened as exports dropped to $6.42bn, from over $6.87bn, and imports rose to $7.12bn, from $6.68bn. Soaring petroleum imports were the main reason behind the deficit.

AUD/NZD forecast for 2022 and beyond

Analysts at HSBC felt the New Zealand dollar could have further to fall, saying:

“Overall, we see further downside risk in the NZD for several reasons: i) growing domestic headwinds pose a downside risk to the projected OCR path, ii) the NZD stands to benefit less from a hawkish RBNZ as the OCR moves further into restrictive territory and weighs on the economy, and iii) New Zealand is exposed to the risk of an underfunded current account deficit amid a global growth downtrend.”

Meanwhile, analysts at Westpac, in their AUD/NZD forecast, thought the Australian dollar could fall modestly against its New Zealand counterpart across the final two quarters of the year, to end 2022 at 1.11. They also predicted the NZD could strengthen modestly and AUD/NZD will hold steady at 1.10 across 2023.

Analysts at ING were also bullish about the NZD next year, but not this year, saying:

“A hawkish RBNZ is not preventing NZD from suffering from a rather unfavourable market environment for commodity FX. Like AUD, the exposure to China’s sentiment remains another major question mark. An NZD recovery should only be a 2023 story.”

In their AUD/NZD prediction, analysts at National Australian Bank saw the pair rising to 1.13 by the end of 2022 before slipping to 1.11 in 2023 and remaining at that level until Q3 of 2024.

As of 13 September, Trading Economics considered that the Aussie could weaken against the kiwi by the end of the year. Its AUD/NZD forecast predicted the pair could fall to 1.1176 by the end of September and carry on falling to 1.1148 in a year.

Algorithm-based forecaster Wallet Investor also predicted that the Australian dollar could weaken, but by a larger margin. The service’s AUD/NZD forecast had the pair ending 2022 at 1.1120. However, its AUD/NZD forecast for 2025 saw the Aussie strengthening against the kiwi and the pair rising to 1.1450 by the end of the year. There were no services that offered an AUD/NZD forecast for 2030.  

It is important to remember that analysts’ and algorithm-based Australian dollar to New Zealand dollar forecasts can be wrong. Always conduct your due diligence before trading, looking at the latest news, technical and fundamental analysis, and analyst commentary. Past performance does not guarantee future returns. And never trade money that you cannot afford to lose.

FAQs

Why has AUD/NZD been rising?

The Australian dollar has risen steadily against its New Zealand counterpart across 2022. While the RBA and the RBNZ have hiked interest rates aggressively, the NZD has failed to benefit in the same way as the AUD.

Will AUD/NZD go up or down?

Whether the AUD/NZD goes up or down could depend on the outlook for the Australian economy compared to New Zealand, and if the RBNZ could start slowing the rate hikes and New Zealand’s trade deficit widens.

There is no clear consensus among analysts or prediction services as to whether AUD/NZD will go up or down.

When is the best time to trade AUD/NZD?

AUD/NZD moves the most in the Asian session as this is when economic data from both Australia and New Zealand is released and when the RBA and RBNZ take monetary policy decisions. The Asian session starts at 10 pm GMT when Sydney opens.

Is AUD/NZD a buy, sell or hold?

Whether you consider AUD/NZD a buy, sell, or hold is a personal decision. You should conduct your own research to understand the latest market trends, news, and analysis while basing your decision on your risk tolerance, investing strategy, and portfolio composition. Keep in mind that past performance is no guarantee of future returns. And never invest money you cannot afford to lose.

 

Markets in this article

AUD/NZD
AUD/NZD
1.08142 USD
-0.00133 -0.120%
GBP/USD
GBP/USD
1.27023 USD
-0.00586 -0.460%

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