Aussie Battles Kiwi for Currency Bragging Rights

(Bloomberg) -- Australia’s dollar won the wooden spoon among Group-of-10 currencies last year, beating its New Zealand cousin in a race to the bottom. This year the contest is a race to the top.

Both commodity currencies are rallying in 2019 after the Federal Reserve turned dovish and as China introduces a slew of measures to bolster flagging growth. The Aussie and kiwi have both strengthened about 3 percent since the start of January, after sliding 9.7 percent and 5.3 percent respectively in 2018.

The first half of February will go a long way to proving if the Aussie or kiwi is the real deal, with interest-rate decisions from the two central banks along with the Australia central bank’s quarterly assessment of economic conditions and key New Zealand job data.

Aussie Battles Kiwi for Currency Bragging Rights

While money markets are pricing in about a 50 percent chance of a rate cut at the Reserve Bank of Australia by year-end, board member Ian Harper said last week he expected the next move to be an increase. Fourth-quarter inflation data beat estimates the following day, adding to the tailwind provided by recent payroll data and a rally in iron ore, the country’s major export.

The Aussie may get a further leg-up if the RBA gives out any further hawkish signals in this Tuesday’s policy statement.

For the kiwi, any improvement in employment and wage data on Thursday would back up recent gains in business sentiment, and possibly herald a more positive tone when policy makers meet on Feb. 13.

The best forecaster for both currencies last quarter says the Aussie is likely to outperform.

“The Australian dollar could have an edge and this opinion is based on how that currency certainly has more ground to recover,” said Juan G. Perez, senior foreign-exchange trader and strategist at Tempus Inc. in Washington. “Australia is also working on multi-billion dollar infrastructure projects, so the materialization of this ambition could lead to the Aussie’s resurgence against its major counterparts.”

The Aussie will advance to around 74 U.S. cents by year-end, while the kiwi will be little changed from its current level at 69 U.S. cents, Perez said.

Others see the kiwi taking the crown.

“‘The risks to the Aussie could outweigh those to the kiwi and we expect to see AUD/NZD remain under pressure for quarter one," says Nick Twidale, chief operating officer at Rakuten Securities Inc.’s Australian unit in Sydney. “Uncertainty from global growth concerns could have more of an effect on the Australian economy and therefore the currency than on the kiwi.”

Technical indicators suggest the kiwi may be set to extend last year’s advance against the Aussie. The moving average convergence-divergence indicator, which tracks momentum, is bearishly below both zero and the signal line, implying risks are skewed toward the Aussie-kiwi cross moving lower.

Below are key Asian economic data and events due this week:

  • Monday, Feb. 4: Australia building approvals, New Zealand building permits
  • Tuesday, Feb. 5: RBA rate decision, Australia retail sales and trade balance, Japan Nikkei services PMI, Philippines CPI
  • Wednesday, Feb. 6: RBA’s Lowe speaks, Indonesia 4Q GDP, Bank of Thailand rate decision
  • Thursday, Feb. 7: New Zealand employment change and hourly earnings, Philippine central bank rate decision, Thailand consumer confidence, Reserve Bank of India rate decision
  • Friday, Feb. 8: RBA statement on monetary policy, Japan household spending, labor cash earnings and BOP current account adjusted, Indonesia 4Q BOP current account balance

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