Foreign Currency Market Update – GBP / NZD Update
The New Zealand Dollar started this week’s session in bright form, sending the GBP NZD exchange rate down from last Thursday’s near-term high of 2.0858 into the low 2.0400s soon after trading recommenced following the weekend close down.
American stock markets remained shut for a public holiday yesterday but last Friday’s session saw the broad-ranging S&P 500 in the US close at a fresh record high as equities traders expressed their relief at the news that the German economy has expanded by a healthier than expected 0.7% during the final three months of last year. The announcement of a newly brokered ceasefire between warring factions on the Eastern edge of Ukraine added to the positive mood in the markets, while the European Central Bank’s announcement of a €5bn extension to its emergency line of credit to Greece’s retail banks added to the sense of optimism amongst investors. The go-ahead mood in the markets saw the risk-driven Kiwi well supported against the Pound.
However, yesterday’s talks between the eurogroup of Finance Ministers and Greece’s hard-line left-wing Syriza-led leadership did not go at all well and were abandoned after just three hours. The men from Athens had been fishing for a complete re-jig of the €240bn bailout which their nation accepted from the ECB / EU / IMF ‘Troika’ at the height of its financial crisis, but they left the get-together very very disappointed, describing the eurogroup’s proposals as ‘absurd’ , ‘unreasonable’ and ‘unacceptable’. The two sides appear poles apart on the best way to deal with Greece’s burgeoning ocean of debt and a failure to reach a workable agreement before the end of the month would force Greece into a messy default which would send shock waves around the global financial system. In such a scenario, investors would rush to shift their assets from risk-laden assets including the New Zealand Dollar and into safer havens. The upshot would likely see the GBP NZD exchange rate break through to its highest level for almost four years at above 2.1058.
In the meantime, this morning’s UK inflation figures will afford GBP NZD some near-term direction. Analysts expect the data to show that the pace of British price rises once again fell back last month – the question for investors is ‘by how much?’ A showing of very close to, or below, zero for the year-on-year inflation measure would see the Pound plunge against the Kiwi, with last month’s low of 1.9243 providing a realistic target for the pair.
Heads Up
Summary of major upcoming data releases that we think may move the market.