Perversely, Friday afternoon’s weak US jobs data also proved supportive for the NZD, albeit in a roundabout way.
Foreign Currency Market Update – GBP / NZD Update
Last Tuesday’s session saw the GBP NZD exchange rate breach the two to one level for the first time since the middle part of June, as appetite for risk continued to seep from the market. The pair broke to a new near-term high of 2.0071, however the visit above two NZD to the Pound proved to be short-lived – GBP NZD was trading back in the 1.9600s before Friday’s market close.
The near-term break higher for the pair started a month ago following GBP NZD’s visit to 1.8962, which now stands as a 6-month low. In truth, the technical indicators were showing that the pair had been ‘oversold’ at these levels, so a corrective move was not unexpected. This correction lasted a month and culminated in the brief move above two to one at the start of last week. With speculators queueing up to ‘take profit’ at these levels, a move lower again was always a possibility. In the end, it was central bank commentaries and actions in the latter part of last week which provided the fundamental impetus for the retracement which followed. Thursday lunchtime saw the Bank of England announce that it would be maintaining base rate at its current record low of 0.50% – a move which came as little surprise to market participants. The Bank also announced that it would not be committing any further funds to its £375bn asset purchase scheme at this stage, but would be keeping the programme ‘under review’. The mere thought of further QE for the UK economy struck fear into investors, triggering a softening of the Pound.
Then came the game-changing announcement from the European Central Bank that it was set to step into global bond markets in order to buy up the government gilts of the eurozone’s most debt-burdened states. The news saw share markets and high-yielding risk sensitive currencies, including the Kiwi Dollar, stage a strong and immediate rally.
Perversely, Friday afternoon’s weak US jobs data also proved supportive for the NZD, albeit in a roundabout way. The closely-watched Non-Farm Payrolls release came out significantly lower than analysts had been anticipating, causing investors to factor-in a higher percentage chance that the Federal Reserve will be announcing a new tranche of Quantitative Easing for the US economy. With Wednesday’s Reserve Bank of New Zealand rate announcement likely to yield a ‘no change’ decision, the next day’s US central bank announcement could be the one to watch. If the Federal Reserve does announce QE3, then expect the near-term downward move for GBP NZD to gain momentum, with June’s key interim floor at 1.8962 providing an initial target.
Summary of major upcoming data releases that we think may move the market.
- Pound to New Zealand Dollar Exchange Rate Forecast: A light schedule of domestic data releases during last week’s session failed to hold back the New Zealand Dollar
- The Pound bounces back against the majors, rising above $1.6000 by the close of trading last night
- Pound to US Dollar Exchange Rate Forecast: The Pound was trading close to 1.5800 last week against the US Dollar
- Pound Sterling to New Zealand Dollar Foreign Currency Exchange Rate Forecast – Sterling give back recent gains
- The New Zealand Dollar traded within a tight trading range against the Pound