Foreign Currency Market Update – GBP / NZD Update
Support for the New Zealand Dollar spiralled following last Wednesday night’s monetary policy announcement from the Reserve Bank of New Zealand (RBNZ).
A significant minority of analysts had been touting the possibility of an interest rate cut from the Kiwi central bank aimed at protecting the domestic economy from continued low global commodity prices. The fact that the RBNZ’s policymakers avoided the temptation to trim rates therefore boosted the Kiwi, but it was the tone of the commentary which accompanied the decision which prompted investors to buy-up the local unit.
The note advised market-watchers that, ‘future interest rate adjustments, either up or down, will depend on the emerging flow of economic data’, suggesting that the next move from the RBNZ was as likely to be a rate hike as a cut. This newly-adopted neutral stance on policy helped the Kiwi to improve sharply against the Pound Sterling in a relatively short space of time – GBP NZD had been trading at above the 2.0800 threshold early on Wednesday, but the pair had slumped to as low as 2.0066 just before Friday’s market close. If this downward momentum prevails for GBP NZD in the short-term, then the pair’s 2015 low of 1.9243, which it touched off during early January, will rapidly come into play.
Two major factors are likely to determine the Kiwi’s performance during this week’s session, and both take place on Wednesday evening UK time. The first is the latest monetary policy announcement from the world’s premier central bank – the US Federal Reserve. An interest rate increase is considered highly unlikely from the Fed this month, but investors will be listening attentively to Chair Janet Yellen’s press conference which follows the announcement for clues on the timing of the next US rate hike. If futures markets are to be believed, Americans may not have long to wait until the Fed tightens its policy – a confirmation of this from Yellen would be likely to see the risk-driven Commodity Dollars, including the Kiwi, to suffer a hit.
However, the New Zealand tender will have an immediate opportunity to recover in such a circumstance, with domestic Q4 Gross Domestic Product numbers penned in for publication later the same evening. Anything above the expected showing will provide the Kiwi with additional near-term support.
Heads Up
Summary of major upcoming data releases that we think may move the market.