Australia vs New Zealand: Rates

With Australian dollar hitting new lows in the past week to the New Zealand dollar, it would be something to look at and question the continuing of the trend and what could cause the current direction to change. The Bank of Australia cut rates earlier this month to a record low while the Bank of New Zealand left rates unchanged. This caused the AUD to decline from about 1.07 to the current 1.035 to the NZD. While the move makes sense it is also something to note that the global economy is still shaky and the Fed is even starting to question whether a summer rate hike is imminent.

It would be important to note the type of data coming out of New Zealand being perceived as bad news, or even a lack of improvement in conditions ,could spark a rate cut of their own. Inflation has been on the decline in the country which could give more room to cut rates.

I am putting on a small speculative position longing the AUD to the NZD and will look to see improvements in the Australian economy which will alleviate the Central Bank's concern about the faltering economy. I will also look to see the Bank of New Zealand tackle weaker inflation by talking down the currency or even cutting rates.