Foreign Currency Market Update – GBP / NZD Update
Friday afternoon’s US jobs data proved to be a double-edged sword for the New Zealand Dollar; on the upside, the keynote labour market numbers, which revealed that over 200,000 American jobs had been generated for the twelfth month in succession, suggested that the world’s premier economy is in rude health. This aspect of the figures helped the export-driven New Zealand Dollar.
However, the downside of the strong US jobs numbers, which also showed that the overall level of joblessness Stateside had sunk to a relatively lowly 5.5%, was their effect in causing the market to price-in a higher likelihood that US interest rates will be increased before the end of Summer. Such a move from the Federal Reserve would, in theory at least, quell demand from American companies for New Zealand’s plentiful raw materials, supressing support for the Kiwi. The price action which followed the US statistics attested to this, with the GBP NZD exchange rate initially climbing back from the 2.00s to an intraday high of 2.0472 before peeling back slightly.
The New Zealand unit had been faring well during the lead-up to Friday’s American data, with the GBP NZD exchange rate plunging to its lowest level for 6 weeks at 2.0056 on Wednesday. The midweek improvement for the Kiwi was attributable to the Reserve Bank of Australia’s decision, announced early on Tuesday, to maintain its official interest rate at its current level of 2.25% for another month. A large percentage of analysts had expected the RBA to once again cut rates – due to the similarities between Australia and New Zealand’s economies, its decision to ‘hold’ was seen as a strong indication that the Reserve Bank of New Zealand (RBNZ) may go the same way on Wednesday night, when it makes its latest policy announcement.
With global commodity prices remaining subdued, a ‘no change’ decision from the RBNZ is by no means a forgone conclusion. However, the consensus amongst commentators is that the Kiwi central bank will opt to maintain its Official Cash Rate at its current level of 3.50%. Such a move would be likely to prompt renewed support for the Kiwi, with its January low of 1.9243 providing a potential medium-term target for GBP NZD in such a circumstance.
However, data published during the weekend market close could alter the outlook of the RBNZ’s policymakers. Official statistics revealing a record monthly trade surplus of £40.3bn in China would ostensibly appear to be good news for the Kiwi, given the Asian giant’s position as the number one destination for New Zealand’s exports. However, drilling down into the February numbers, commentators noted that the level of Chinese exports had grown substantially, while the volume of imports has slid back. If the RBNZ make mention of this and suggests that a domestic interest rate cut remains a possibility for later this year, then support for the New Zealand unit could once again flounder, potentially sending GBP NZD up towards its February peak of 2.0937.
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Summary of major upcoming data releases that we think may move the market.