RBNZ to release its inflation expectation today.

ANZ Bank recently came out and said that it thought the RBNZ would be forced to put the official cash rate down twice starting with a rate drop in June and another in July. This saw the Kiwi Dollar fall off its recent highs 0.7560 and this morning weaker than expected Producer Prices data helped push the Kiwi Dollar to 0.7370 at 8.45am AEST. 

But it’s 1.00pm AEST I am waiting for today as the RBNZ will release its latest inflation expectation for the New Zealand economy and with recent economic data softening it won’t surprise me to see traders price in a dovish RBNZ inflation statement and the Kiwi Dollar fall even further. 

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Is One Kiwi Dollar about to be worth more than one Aussie?

We may have recently beaten the Kiwis (flogged them actually) in the Cricket World Cup Final but it’s the Kiwis who are winning the currency price race with one Kiwi Dollar now being worth the same as one Aussie Dollar.

This is the first time since June 1995 the AUDNZD has been this low.  It reached 1.0275 in June 1995 and since then has averaged around 1.2500 with a high of 1.3791 in March 2011. So why is the AUD dropping so far against the Kiwi Dollar? The answer is because the official cash rate at the RBNZ is 3.5% and the official cash rate at the RBA is 2.25% making a 1.25% interest rate differential between the two Central Banks. Graham Wheeler the RBNZ Governor won’t like the Kiwi overtaking the Aussie Dollar in value because it simply makes New Zealand less competitive on an international trade basis and with Australia being such an important export and tourism partner a high Kiwi Dollar is just not good for the Kiwi economy.

I am not sure too many Aussie’s will be able to bring themselves to go to New Zealand now $1 AUD ends up being worth less when they exchange it into Kiwi Dollars. Of course its great for Australian tourism and if you are worried about an influx of more Kiwis’ coming across the Tasman to live in Australia you should be. They are coming in droves now! 

650,000 Kiwi Citizens now live in Australia and the migration out of NZ to Australia has increased 40% in the last 10 years and is increasing every year. 650,000 Kiwis living in Australia is 12% of the NZ population. In comparison only 70,000 Aussies live in NZ, which is 0.03% of the Australian population.  With the AUDNZD now at parity and soon likely to be even lower the Government in New Zealand might just have to shut the exit door.

The week ahead in the Currency Markets

It’s a busy week ahead for the Aussie Dollar with lots of high impacting news scheduled. Tuesday sees the latest RBA statement and interest rate decision, Wednesday we get the latest Retail Sales figures, Thursday it’s unemployment data and on Friday we get another statement from the RBA on monetary policy.
LTG GoldRock Reviews the latest Forex News to help everyday investors master the Forex Markets. 

LTG GOLDROCK REVIEWS the New Zealand RBNZ Rate Decision

New Zealand will receive its latest RBNZ statement and rate decision tomorrow morning at 7am Sydney time. 100% of economists expect the RBNZ to lift the official cash rate to 3% and whilst most of this move has been priced in, now that the Aussie is weakening it will likely add to the selling pressure once again if the RBNZ follows through with another rate rise.

LTG GoldRock Reviews the latest from the Reserve Bank of New Zealand and the upcoming rate decision.

Kiwi Retail Sales keeps the Kiwi Dollar in check.

A weaker than expected Retail Sales number for New Zealand has held back the buyers from adding to their long positions leading into the official Kiwi interest rate announcement at the end of the month. The January Retail Sales figure was expected to show growth of 1.7% in January however the number that printed on computer screens was 1.2% indicating the Kiwis didn't spend as exuberantly in January as anticipated.

Will this alter the RBNZ's decision to begin raising interest rates "soon"?  No, the RBNZ has indicated that interest rates need to return to more normal levels and to expect a rise in the official interest rate by 2.25% over the next 2 years.

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What will the RBA do to interest rates today?

The Reserve Bank of Australia is highly likely going to leave the cash rate at 2.5% today but it is the statement that the market can't wait to read. I am sure you are well aware the RBA wants the Aussie Dollar at 0.85c or less to the US Dollar as this will have the impact on the economy Australia needs to balance things out and assist in a recovery. Yes, housing prices are rampantly rising in Sydney and the current 2.5% official cash rate is seeing some sectors of the country benefit, but the facts remain. Unemployment is rising, national debt is out of control, wages are too high, the cost of merely living in Australia is ridiculous compared to the rest of the world, manufacturing is continuing to go backwards and Australians are just simply not willing to spend or lend money at a rate that will help right the ship. Australia is currently very unbalanced economically and this needs to be addressed.

The RBA has a mandate of keeping inflation between 2% and 3% and the recent quarterly inflation figure spiked to 2.7%. Couple this with rising house prices and in a normal balanced economy this would be a recipe for a quick interest rates rise.

Andrew Barnett provides ongoing commentary to LTG GoldRock Members each day in the GoldRock Insider Report. Learn more about his Fundamentals for Success on www.LTGGoldRock.TV