Foreign Currency Market Update – GBP / NZD Update
However, a surprise move from an institution that would not normally be expected have an effect on the relative value of the Kiwi saw GBP NZD end the day back down in the 1.9300s. Switzerland’s central bank has stringently maintained a 1.2000 minimum floor on the EUR CHF exchange rate for the past three years in an effort to boost domestic exports and to price foreign importers out of the local market. The Swiss National Bank (SNB) achieved its aim by aggressively selling Franc-denominated assets on the open market whenever the Swiss tender began to strengthen against the euro.
Thursday morning’s announcement by the SNB that it would be scrapping its minimum floor policy with immediate effect was taken by investors as a strong indication that the SNB felt that it would no longer be able to maintain the Franc at an artificially weak level against the single currency in the near-term – in short, that Switzerland’s policymakers expected the European Central Bank (ECB) to introduce a full-tilt Quantitative Easing programme later this week. Such a move from one of the world’s leading central banks would strongly favour the risk-driven New Zealand unit, so GBP NZD came under sustained selling pressure in the aftermath of the news from Switzerland.
D-Day for the investors holding the Kiwi Dollar comes on Thursday lunchtime when the ECB will make its latest policy announcement. Analysts almost universally expect the ECB to reveal plans for wide-scale sovereign debt purchases, with the consensus being that a €500bn programme is the most likely outcome. If the ECB fails to announce all-out QE – a live possibility, given Germany’s ongoing resistance to such a policy – then expect GBP NZD to track sharply Northwards towards last week’s peak of 1.9773. Conversely, the announcement of a QE programme totalling over €500bn worth of asset purchases from the ECB would strongly support the New Zealand tender. In such a circumstance, look for GBP NZD to incur sustained selling pressure, potentially sending the pair down towards its 9-month low at 1.9243.
Heads Up
Summary of major upcoming data releases that we think may move the market.