Aus Dollar Hit by NZ Dollar Woes As Central Bank Governors Get Vocal on Exchange Rate Valuations

The impact on both AUD and NZD against the euro and pound was notable:

• The pound to Australian dollar conversion: 1 GBP = 1.8514, the exchange rate fell 0.66 pct lower on a day-to-day basis.
• The pound to New Zealand dollar conversion: 1 GBP = 2.047 NZD, the exchange rate rose 1.25 pct - rarely do you see such moves.
• The euro to Australian dollar conversion: 1 EUR = 1.4446 AUD, the exchange rate headed 0.41 pct higher.
• The euro to New Zealand dollar conversion: 1 EUR = 1.5985, the exchange ratemoved a full percent higher.

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Aussie Dollar Takes a Pounding

The Aussie dollar took a hit on Thursday after the RBA warned risks to banks were increasing and borrowers would be the first in line to wear the pain of a correction in house prices.

Glen Stevens will be speaking to the Economic Forum in Melbourne and said, "The RBA’s assessment is that the risk from the current strength in housing markets is more likely to be to future household spending than to lenders’ balance sheets."

"However, the direct risks to banks will rise if current rates of growth in investor lending and housing prices persist, or increase further."

The bearish assessment of the Australian economy chimes with the view that China's economy is due to slow down.

A combination that will hit the Australian dollar moving forward.

NZ Dollar Plummets

The pound pushed above the magic 2.0 level against the New Zealand dollar in the wake of comments from the RBNZ governor over the valuation of the NZD.

RBNZ governor Graeme Wheeler warned the level of the exchange rate for the New Zealand dollar was "unjustified and unsustainable".

Currency markets have taken this as a clear sign that the RBNZ may intervene in the currency markets in the future in an attempt to push the value of the NZD lower.

The slumping NZD caught the AUD and both are sitting well below recent levels. The outlook appears to have turned a great deal more bearish as a result of the sharp moves and we would not be surprised to witness further declines going forward.

Masterful Jawboning

Commenting on the afflicted NZ dollar is Boris Schlossberg at BK Asset Management who says:

"In masterful example of jawboning Governor Wheeler practiced the art of kicking a man while he was down as he obliquely noted that the exchange rate of the NZD/USD was unsustainable and that unsustainability was a key factor in considering intervention.

"Given the fact that sentiment was already highly skewed towards the dollar and that liquidity in kiwi was thin, Mr. Wheeler's comments caused an avalanche of selling that pushed NZD/USD more than 100 points lower off session highs."