The GBP NZD exchange rate has tested higher several times since its near-term low of 1.8634.
Foreign Currency Market Update – GBP / NZD Update
For much of the past month, the Pound has looked down and on the verge of being ‘counted out’ against a strong Kiwi Dollar. However, last week’s session saw Sterling pick itself up off the canvas and rouse itself to action once more. This saw the GBP NZD exchange rate trade up to 1.9028 just before last Friday’s close, marking a recovery of almost 4c from the 6-month low of 1.8634, which it reached on the 15th February.
New Zealand is a country rich in natural resources, but with a tiny domestic market, so the Kiwi economy is heavily reliant on the revenues it accrues from the export of commodities to other nations. This meant that last night’s weaker than anticipated NZ January Trade Balance figures were particularly damaging for the Kiwi Dollar. The data showed that New Zealand ran a trade deficit of NZ$199m last month, versus expectations of NZ$167m surplus. The Reserve Bank of New Zealand’s Q1 inflation survey, released in the early hours of last Tuesday morning UK time, provided further downside pressure for the NZD, showing that the consensus amongst New Zealand’s business community is that domestic inflationary pressures are easing. This may give the RBNZ increased leeway to cut interest rates later in the year. Meanwhile, in the UK, Tuesday saw a rare piece of good news regarding Britain’s public finances, with the release of government figures which showed that, for the first time in several years, the UK government managed to pay down a chunk of the national debt last month. However, the minutes of the most recent Bank of England MPC committee meeting, released on Wednesday, were Sterling-negative, showing that two of the nine-man committee had voted for a £75bn increase in Britain’s QE scheme. A further loosening of UK monetary policy now looks likely for later in the year.
*Denotes the importance of the data item *** being the highest level.
** This month’s Nationwide House Price Survey is penned in for release in the early hours of Tuesday morning in the UK. It’s expected to show an annualised increase of 0.3% in British house prices.
** February’s GfK Consumer Confidence Survey is released in the UK in the early hours of Wednesday morning – an improvement on January’s -29 figure is anticipated.
** Later on Wednesday morning comes the release of British Mortgage Approval data for January.
** UK PMI Surveys for January for the manufacturing and construction sectors are due for release on Thursday and Friday respectively. Both are expected to show a slight weakening off from December’s figures.
** The early hours of Wednesday morning bring the release of the NBNZ Business Confidence and Activity Outlook surveys for February.
** Wednesday night sees the release of Q4 Quarterly Terms of Trade numbers in New Zealand. A print of -1.9% is anticipated versus Q3’s -0.7% result.
The GBP NZD exchange rate has tested higher several times since its near-term low of 1.8634, reached in the middle of this month. However, on each occasion it has failed to make a convincing break higher. It’s highly unlikely that any strongly Sterling-positive news is going to emerge from the UK’s floundering economy any time soon, so that leaves clients requiring NZD reliant on a weakening of the Kiwi Dollar in order to take the rate higher. The benchmark SP 500 share index rallied strongly for the two months following Christmas week, but this forward move appears to have run out of steam over the last ten days, as fears persist over the eurozone debt crisis, the Iranian oil stand-off and ongoing government-ratified violence in Syria. If escalating concerns over these situations cause a shift out of riskier assets from institutional investors, then the risk-sensitive NZD would weaken and the GBP NZD rate would move higher. However, caution is advisable, as consecutive closes below 1.8634 would send out a strong negative signal for the GBP NZD pair.
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