Foreign Currency Market Update – GBP / NZD Update
Thursday’s session brought the widely-anticipated announcement from the European Central Bank (ECB) that it was instigating a large scale sovereign debt purchase scheme for the eurozone. The €60bn per month Quantitative Easing programme, which is set to start in March, carried more oomph than most investors had been anticipating. The fact that the euroland’s central bank also committed to continuing the ‘easy money’ policy until at least September 2016 provided global investor sentiment with an additional boost which would ordinarily have seen the risk-driven Kiwi Dollar strongly supported.
However, the New Zealand tender continued to lose ground in the aftermath of the ECB announcement. The reason behind this may lie in the generalised shift towards looser monetary policy from the world’s larger central banks last week. The Bank of Canada announced a surprise cut in its key interest rate last Wednesday, while the latest Bank of England minutes, published the same day, showed that, for the first time since last August, all nine policymembers had unanimously voted in favour of a maintenance of the UK’s Base Rate at its current record low of 0.50%. The main factor keeping the New Zealand Dollar strong, in relative terms, against the other sixteen most actively traded global currencies, has been its relative yield advantage.
The increasing evidence that, with the price of a barrel of crude oil forecast to remain low for some time, the global economy may be heading towards a period of near-zero interest rates, suggests that the Reserve Bank of New Zealand (RBNZ) may be forced to begin trimming its key lending rate – a move which would hit the Kiwi hard. We will find out more regarding the RBNZ’s plans on Wednesday evening, when it makes its latest policy announcement. If New Zealand’s reserve bank follows the lead set by its Canadian counterpart last week and shocks investors with a surprise rate cut, then the GBP NZD exchange rate is likely to spiral towards last September’s range-topping level of 2.1058.
However, a ‘no change’ decision from the RBNZ, (which remains the outcome considered most likely by analysts), followed shortly afterwards by a strong set of domestic December trade statistics, would see GBP NZD track Southwards towards the low of 1.9243 which it touched off at the start of this month.
Heads Up
Summary of major upcoming data releases that we think may move the market.