Foreign Currency Market Update – GBP / NZD Update
Relatively light trading volumes in the global currency markets during the past ten days have not stopped the Pound Sterling New Zealand Dollar exchange rate edging back below the psychologically significant two to one threshold. GBP NZD had been changing hands at above 2.0200 at the start of Christmas week but a steady improvement in market sentiment during the days which followed helped the risk-driven Kiwi to strengthen against its peers.
The middle part of December was marked by a sharp bout of risk aversion, but global investors regained their confidence as the New Year began thanks to comments from European Central Bank President Mario Draghi in an interview with German financial newspaper Handelsblatt. The ECB Chief asserted in Friday’s piece that, ‘the risk that we do not fulfill our mandate of price stability is higher than six months ago,’ causing market participants to factor-in a higher percentage chance that the euroland’s reserve bank will be announcing plans to bulk buy sovereign debt later this month.
The middle part of this week’s session could prove to be decisive for investors holding New Zealand Dollar-denominated assets. If, as expected, Wednesday’s official statistics show that the pace of euroland price rises slipped into negative territory last month, then expect the Commodity Dollars including the Kiwi to hoover up support in anticipation of full tilt QE from the ECB. If such an outcome sends the GBP NZD exchange rate down through last week’s low of 1.9825, then the next level heading Southwards for the pair comes at November’s nadir of 1.9619.
However, any QE-fuelled gains for the New Zealand Dollar could be curbed by further disappointing economic statistics out of China. Last Wednesday’s confirmation that the level of manufacturing output in the world’s second largest economy had contracted for the first time in seven months during December added to investors’ concerns regarding Asia’s powerhouse economy. If tonight’s survey of the services sector of China’s economy adds to these jitters, then the New Zealand Dollar could give up some of its recent gains against Sterling. Any renaissance for GBP NZD could send the pair upwards towards its mid-December peak of 2.0390.
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Summary of major upcoming data releases that we think may move the market.