Foreign Currency Market Update – GBP / NZD Update
As anticipated, Wednesday evening saw the Fed leave its key interest rate unaltered, however comments in the US central bank’s accompanying statement, and Chair Janet Yellen’s press conference which followed, saw investor sentiment surge. The Fed’s missive pointedly omitted the word ‘patience’ which recent statemnets had used to describe US policysetters’ attitude to a rate hike. This was replaced by guidance that ‘further improvement’ in American jobs statistics would be required before a tightening of policy happened. This message, in combination with the Fed’s observation that domestic economic growth had ‘moderated somewhat’ since the turn of the year, led market participants to conclude that the first US interest rate increase in a new policy tightening cycle remains many months away. Global share markets surged at this prospect, with London’s FTSE 100 breaking through the 7,000 barrier for the first time since its inception in 1984, while the attendant spike in appetite for risk saw the export-driven Kiwi record strong gains.
The Kiwi had endured a wobble earlier in the week when the latest GlobalDairyTrade auction results revealed a drop of almost 9.0% in average prices paid. This represented the first negative outcome for the fortnightly sale since last year and came as bad news for NZD given that agricultural products are New Zealand’s number one export by volume.
Meanwhile, on the domestic front, Wednesday’s Bank of England (BoE) minutes appeared to offer some hope to holders of the Pound, showing that two members of the nine man committee had come close to voting for an interest rate hike. However, the Sterling-positive effect of these memos was more than cancelled out by Friday’s ‘unofficial’ comments from a BoE insider which suggested that a British rate cut was now ‘as likely’ as an increase. Reports of these remarks ensured that the Pound ended the week in poor form, sending GBP NZD down to 1.9703 – its lowest level for two months – on Friday afternoon.
There could be further losses to come for Sterling if tomorrow’s inflation figures confirm that the UK economy is close to entering a period of deflation. In such an instance, expect GBP NZD to edge downwards towards its 11-month low of 1.9243. However, a disappointing showing from tomorrow evening’s New Zealand export data would have the reverse effect, potentially seeing GBP NZD settle back above the two to one threshold once more.
Heads Up
Summary of major upcoming data releases that we think may move the market.