Commodity currencies, which commonly include the Australian, Canadian or New Zealand dollar, have been characterized by significant weakness in recent weeks. The AUD/USD exchange rate at some point was below 2019 low, which meant that the Australian dollar has weakened to levels that have not been observed since the beginning of 2009.
Meanwhile, the New Zealand dollar depreciated for six weeks in a row to reach its lowest level since November 2019, while CAD depreciated against USD to levels last seen in the fourth quarter of last year. First, the trade war between the US and China, followed by the outbreak of the epidemic in China, seemed to lead to both a worsening of forecasts for economic growth in China and countries heavily dependent on China's economy, as well as to Australia, as well as a decline in oil demand, which potentially hit Canadian dollar.
Now after the decisions of the central banks of Australia and New Zealand, it seems that the situation is not as bad as originally expected. Last week's RBA decision found that earlier easing of monetary policy had a positive impact on the labor market and inflation. Even despite bushfires and the outbreak of the virus, RBA believes that consumption and the housing market will support the Australian economy and that there is no need to ease monetary policy further, especially as inflation remains close to the target. Such statements seem to be positive for AUD as today's RBNZ statement for NZD.
Today the Reserve Bank of New Zealand maintained its cash rate at 1 percent. This level is adequate to keep employment and inflation close to the target. RBNZ believes that the effects of the outbreak will be short-lived and pose a lower risk. However, if the situation worsened, then RBNZ will act accordingly. The statement also shows that economic growth may accelerate in the second half of 2020 thanks to monetary and fiscal stimulus.
A quite optimistic attitude of central banks from Antipodes seems to be supporting AUD and NZD. Only after the RBNZ decision, the NZD/USD exchange rate jumped by 1 percent, thanks to which NZD took the lead as the strongest currency of the week. In second place is the Australian dollar, which returned from an 11-year low. Therefore, commodity currencies seem to be moving higher even despite the 4-month highs observed on the US dollar index.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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