Foreign Currency Market Update – GBP / NZD Update
The Sterling New Zealand Dollar exchange rate slumped to its lowest level since the end of January during early trading today. The Kiwi has been helped in the short-term by last night’s announcement from the Reserve Bank of Australia that it was set to keep its headline interest rate on hold. A large percentage of analysts had expected Australia’s central bank to announce another cut – the fact that the nation’s policymakers resisted this temptation was taken by investors as a sign that the short burst of policy-loosening from the Commodity economies is now nearing an end. The implication of this is that the Reserve Bank of New Zealand may sit also sit on its hands for the time being and Kiwi-holders breathed a collective sigh of relief.
The weekend news that the People’s Bank of China had decided to cut its headline interest rate has ensured that the New Zealand tender started the week in good form. The central bank of the world’s second largest economy announced its second interest rate cut in the space of three months on Saturday; the 25 basis point cut to a relatively lowly 5.35% is designed to spur domestic growth and with China still representing New Zealand’s number one export destination, this came as more positive news for the Kiwi.
GBP NZD hit its near-term peak of 2.0937 on 3rd February and the subsequent month has brought a steady shift lower for the pair. The start of last week’s session brought a brief wobble for the New Zealand unit as Greece’s policymakers procrastinated over presenting a list of economic reforms which the eurogroup had requested as a qualifying condition for a 4-month extension of its bailout loan. In the end, the men from Athens put forward their proposals for chasing tax payments and cracking down on tobacco smuggling on Tuesday and appetite for risk surged, favouring the New Zealand tender. If the positive mood amongst market participants prevails, then expect GBP NZD to continue to drift downwards with January’s low of 1.9252 providing a target.
However, last Friday’s official US statistics which saw the Q4 GDP growth numbers from the world’s premier economy downwardly revised from an original estimate of 2.6% to 2.2% could yet harm the Kiwi. If evidence mounts that the global economic recovery is stalling, then the export-driven New Zealand tender is likely to give up ground. The 2.0772 which the pair touched off a week ago could come into play in such a circumstance.
Heads Up
Summary of major upcoming data releases that we think may move the market.