Exchange Rate Calculator

The exchange rate between the Australian Dollar (AUD) and the New Zealand Dollar (NZD) has experienced notable fluctuations over the past few months, influenced by divergent monetary policies, economic indicators, and market sentiments in both countries. This report delves into the key factors affecting the AUD/NZD exchange rate, providing insights into recent trends and future projections.

Divergent Monetary Policies

Reserve Bank of Australia (RBA): In February 2025, the RBA reduced its official cash rate by 25 basis points, bringing it down to 4.1%. This marked the first rate cut since November 2020 and was largely anticipated by the market. The RBA's decision was influenced by a slowdown in inflation, with the trimmed mean gauge of consumer prices rising by 3.2% year-over-year in Q4 2024, slightly below the expected 3.3%.

Reserve Bank of New Zealand (RBNZ): Conversely, the RBNZ has adopted a more aggressive easing stance. In February 2025, the RBNZ cut its official cash rate by 50 basis points to 3.75%, following three consecutive rate cuts in 2024. This move was driven by a deceleration in inflation and a rapid slowdown in growth conditions, including declining business confidence and a prolonged contraction in the manufacturing sector.

Economic Indicators and Labor Market Conditions

Australia: The Australian economy has demonstrated resilience, with the unemployment rate remaining stable at 4% as of December 2024. This stability suggests a relatively robust labor market, supporting the AUD.

New Zealand: In contrast, New Zealand's unemployment rate rose to 5.1% in Q4 2024, nearing its peak during the COVID-19 pandemic. This uptick indicates a weakening labor market, which has contributed to the NZD's underperformance.

Interest Rate Differentials and Yield Spreads

The divergence in monetary policies has led to widening interest rate differentials between Australia and New Zealand. The 2-year and 10-year yield spreads between Australian and New Zealand government bonds have steepened, favoring the AUD. This trend suggests potential upside for the AUD/NZD exchange rate, as higher yields attract investors seeking better returns.

Market Forecasts and Projections

Bank of America (BofA): Analysts at BofA have revised their forecasts for the AUD/NZD pair, projecting it to rise to 1.13 by Q4 2025 and further to 1.16 by Q4 2026. These adjustments reflect expectations of continued policy-rate differentials and economic divergence between the two countries.

ExchangeRates.org.uk: The platform forecasts the AUD/NZD exchange rate to reach 1.1135 in three months, representing a 1.4% increase from the current rate of 1.0981. This projection aligns with the anticipated strengthening of the AUD against the NZD in the near term.

Technical Analysis

Technical indicators suggest a bullish outlook for the AUD/NZD pair. The pair has been trading above its 50-day moving average since early February 2025, and the daily MACD trend indicator has signaled a potential start of medium-term bullish momentum. Key support and resistance levels to watch include 1.0980 and 1.1190, respectively.

Conclusion

The AUD/NZD exchange rate is currently influenced by divergent monetary policies, economic indicators, and market expectations in Australia and New Zealand. The RBA's measured approach to rate cuts, coupled with a stable labor market, supports the AUD. In contrast, the RBNZ's aggressive easing and weakening economic indicators weigh on the NZD. Market forecasts and technical analyses suggest a potential strengthening of the AUD against the NZD in the coming months. Investors should monitor central bank communications, economic data releases, and global market developments to make informed decisions regarding the AUD/NZD currency pair.