AUD/NZD Talking Points:
- The Australian and New Zealand Dollars tend to closely follow global stock indexes
- AUD/NZD[1] can thus at times net out market mood swings, acting as “risk neutral”
- This places the focus for AUD/NZD on RBA and RBNZ monetary policy expectations
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Part 1 - AUD & NZD, Sentiment-Linked Currencies
In the majors FX spectrum, two currencies often find themselves moving in tandem with global stock indexes such as the S&P 500[3] and Nikkei 225[4]. These are the Australian and New Zealand Dollars. To get a rough idea of why, we have to go back to the 2008 financial crisis. Central banks in developed economies at the time cut their lending rates close to or near zero levels to help stimulate their economies as liquidity shrunk, growth slowed and inflation fell.
However, two of them did not quite cut rates as far. Those are the reserve banks of Australia and New Zealand. While the Fed’s benchmark rate hovered between a range of 0.00% – 0.25% and the Bank of England pushed theirs down to 0.50%, the RBA and RBNZ reached 3.00% and 2.50% respectively. Then, in the aftermath they eventually glided down to 1.50% and 1.75% respectively (though at times they did rise before getting to those levels).
Still, those rates were higher than what other major central banks offered. This in turn gave investors an option for higher returns in a world with depressed yields. One could borrow
