Foreign Currency Market Update – GBP / NZD Update
A lengthy bout of fair weather helped the New Zealand Dollar firm to its strongest level against the Pound since the final week of last month during last Tuesday’s trading session.
The result of the latest Global Dairy Trade online auction, which took place during the early part of last week, revealed that the price of cheese and powdered milk had both shot up since the previous sale two weeks earlier. The overall average price rise of produce at the sale amounted to 10.1%, with Cheddar gaining a huge 16.8% in a fortnight, while whole milk powder rose by almost 14%. The spike in prices, which was well received by New Zealand’s plentiful dairy farmers, was attributed to recent drought conditions in the ‘Land of the Long White Cloud’. The upshot saw the Kiwi push ahead against Sterling, sending the GBP NZD exchange rate down to as low as 2.0322.
The remainder of the week saw geo-political risk anchor support for the New Zealand unit. An apparent lack of commitment to the ceasefire agreement between the Kiev administration and the Moscow-backed rebels who have taken up arms in the Eastern part of Ukraine, sapped the market of risk appetite as the week wore on. Last weekend’s prisoner swap involving a few dozen fighters provided some ground for encouragement, while Sunday’s news that the Ukrainian army had begun to withdraw its heavy weaponry from the zone where the most intense fighting has taken place also provided some grounds for optimism. However, yesterday’s assertion from Russian President Vladimir Putin that an escalation to all-out war in the troubled region is ‘unlikely’ hardly filled investors with confidence. Any deterioration in the tinderbox situation on the Eastern edge of Europe would see market participants shift out of risk-laden assets including the Kiwi Dollar, sending GBP NZD higher once more.
Elsewhere, investors spent much of last week fretting over whether Greece’s new Radical government would reach a deal with the eurogroup which would allow their debt-riddled nation to avoid all-out bankruptcy. An eleventh hour announcement late on Friday that the eurozone’s Finance Ministers had assented to a 4-month bailout extension for the Hellenic state helped alleviate market jitters, sending global stock markets up to fresh highs.
However, yesterday’s confirmation from Greece that it would not be submitting its list of reforms to accompany the bailout extension until this morning raised fresh fears of a Grexit – the eurogroup had instructed Athens to submit its terms yesterday. A swift resolution to Greece’s near-term problems, coupled with positive comments from Reserve Bank of New Zealand Governor Graeme Wheeler in his Auckland speech tonight, could send GBP NZD back down towards last week’s low once more.
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