Foreign Currency Market Update – GBP / NZD Update
The change in tack from the RBNZ weighed down the Kiwi, sending the GBP NZD exchange rate up to 2.0871 – its highest level since the final week of last September. However, the pair looked overbought at this range-topping rate and by the latter part of yesterday’s session, was trading back down in the 2.0500s once more. The relative improvement for the Kiwi was partly fuelled by a mini-recovery in global oil prices which began last Friday. The price of a barrel of Brent Crude traded up to as high as $55 yesterday, having languished at close to $46 during the middle part of January. With house prices in New Zealand, and in particular Auckland, continuing to show signs of overheating, any further increment in wholesale oil prices could prompt the RBNZ to perform a quick fire volte face and revert to the use of language hinting at a near-term tightening of policy. Such an outcome could add momentum to the move lower for GBP NZD which began during the hours leading up to Friday night’s currency market shutdown. In such a circumstance, look for GBP NZD to trend downwards towards its January low of 1.9243.
However, the potential for a sharp downward move in global investor sentiment – a development which would hit the risk-driven New Zealand unit hard – remains. Greece’s new Finance Minister Yanis Varoufakis embarked upon a whistle-stop tour of the European Union’s financial centres during the final stretch of last week and so far, it is fair to say that his visit has not gone well. The shaven-headed Hellenic hardliner raised the heckles of eurogroup Finance Chief Jeroen Dijsselbloem when the pair met last Thursday by promising that Greece would have no communication with the EU/ IMF / ECB ‘Troika’ which had previously lent the debt-addled nation some €240bn. With Greece’s current bail-out programme drawing to a close on the final day of this month, it would appear likely that the nation’s new leaders will leave themselves with no option but to default on a major tranche of her sizeable debt commitments. Such an action would be likely to send investors running for shelter and shunning risk-laden assets including the Kiwi. In such an event, expect the GBP NZD exchange rate to make a concerted run at last Autumn’s 3 ½ year high of 2.1058.
Heads Up
Summary of major upcoming data releases that we think may move the market.