The longer the GBP NZD exchange rate holds above February 3rd’s 6-month low of 1.8851, the better, for clients needing to purchase NZD.
Foreign Currency Market Update – GBP / NZD Update
The GBP NZD exchange rate has spent virtually the whole of the past seven days lodged firmly between its near-term low of 1.8851 and the significant 1.9000 level. Last Friday’s session saw a brief rally which sent the pair up as high as 1.9138, however this break was short-lived and the pair has once again settled in below 1.9000 as this week’s session gets underway. The fact that GBP NZD had every opportunity to break down through support at 1.8851, (the pair’s 6-month high), but failed to do so, sets this level up as a key interim floor.
Last Wednesday’s New Zealand employment data proved to be a curate’s egg – on the one hand, the numbers showed that the rate of unemployment in NZ had dropped from 6.6% in Q3 to 6.3% in Q4 of 2011, bettering analysts’ expectations that the key figure would show at 6.5%. Less positively, the data also showed that there had been a quarterly growth in NZ employment of only 0.1% in the last three months of 2011, significantly below analysts’ expectations of a 0.4% increase. Meanwhile, the major news in the UK last week was provided by the Bank of England’s Monetary Policy Committee decision on Thursday morning, which saw the Bank keep interest rates on hold at 0.50%, while increasing its asset purchase target from £275bn to £325bn. The Pound held up well against the NZD in the immediate aftermath of the announcement, suggesting that most investors had ‘factored-in’ an increase in the UK’s QE programme. Thursday afternoon brought Sterling-negative news, with the release of the latest UK GDP Estimate from leading think tank the NIESR. The figure used the treasury’s own economic modelling software to predict that Britain’s economy had contracted by 0.2% in the three months leading up to the end of January 2012; if this is confirmed by official Office of National Statistics figures, then the Pound is likely to come under further selling pressure.
*Denotes the importance of the data item *** being the highest level.
*** Tuesday’s UK CPI Inflation data for January is expected to show a marked drop from December’s 4.2%, to show at an annualised 3.6%.
*** Wednesday morning’s UK Unemployment figures for January will be closely-watched by analysts. An increase in British jobless claims of 3,000 is expected.
*** Wednesday afternoon sees the release of the latest Bank of England Quarterly Inflation Report. Investors will be monitoring the report for clues on the future direction of British monetary policy.
** Friday morning’s UK Retail Sales numbers for January are expected to show a monthly contraction of 0.3%, following December’s positive 0.6% showing, providing the potential for selling pressure on the Pound.
** January’s REINZ House Sale figures are released on Tuesday in NZ.
** Tuesday night sees the release of NZ Retail Sales data for Q4, 2011. A drop-off from Q3’s print of 2.2% is expected.
** The latest Business NZ Performance of Manufacturing Index is released on Wednesday night. An improvement on December’s print of 51.9 would be NZD-positive.
The longer the GBP NZD exchange rate holds above February 3rd’s 6-month low of 1.8851, the better, for clients needing to purchase NZD. Conversely, the fact that the pair has failed to make a convincing break higher, in the ten days since the near-term low was reached, provides reason for concern. Last night’s news from Greece that MPs have voted to accept the latest EU/IMF/ECB approved austerity package has seen European and UK stock markets make significant gains in the early part of today’s session, signalling the return of a ‘risk-on’ trading environment. If institutional investors continue to shift their funds out of safety plays and into relatively high-yielding currencies, including the NZD, during this week’s session, then a run at 1.8851 looks highly possible for the GBP NZD rate. A break below this level would bring August’s multi-decade low of 1.8546 firmly into view. Clients requiring New Zealand Dollars in the near-term should consider taking care of at least some of their requirement sooner rather than later in case such a scenario transpires.