Foreign Currency Market Update – GBP / NZD Update
Market Update – GBP NZD
There was no tier one data out of New Zealand during last week’s session, but that didn’t stop significant price action taking place for the Pound Sterling Kiwi Dollar exchange rate.
Most of the intrigue for the pair was driven by the Pound, with Tuesday’s UK CPI inflation numbers grabbing the headlines. The keynote price rise figure showed at a below-expectations annualised 0.0% and Sterling took a hit across the board as a consequence. The result, which represented the lowest outcome for the CPI number since the Office of National Statistics began measuring it in the 1980s, makes it highly unlikely that the Bank of England (BoE) will be able to raise its key interest rate any time soon. Indeed, the data re-enforced the preceding week’s comments from the BoE’s Chief Economist Andy Haldane suggesting that the next UK policy move might be an interest rate cut, and Sterling endured heavy selling pressure as a consequence. The move which followed sent GBP NZD down to a fresh 2-month low of 1.9377.
Sterling recovered during the second part of the week as BoE policymakers queued up to contradict Haldane. Governor Mark Carney led the way, telling a conference in Germany on Friday that he expected the next move on domestic interest rates to be an upward one, while Deputy Governor Ben Broadbent described a rate cut as unlikely in a print interview the next day. The flurry of British central bank speakers last week was partially driven by the fact that the official UK election campaign begins today. In order to maintain the Bank’s impartiality, BoE policysetters will now begin a purdah and not comment on policy until the outcome of the popular ballot is known in the second week of May. One thing all political analysts agree on is that a clear-cut election result is highly unlikely; most commentators feel that whatever the outcome, Sterling is likely to give up ground against the other major global tenders. Another Conservative-led coalition would be perceived as bringing an economically disastrous UK exit from the European Union closer, while a Labour-led government would be viewed by many as being ‘anti-business’. The problems for Sterling are stacking up, making a renewed move lower for GBP NZD a live possibility. In such a circumstance, consecutive closes below its 2015 low of 1.9243 could send the pair into free-fall, bringing April 2013’s multi-year low of 1.7707 into view.
Looking ahead, Kiwi-watchers will have to wait until just before the weekend close for the main event during this week’s session, and it isn’t even taking place in New Zealand. Futures markets are now not anticipating an American interest rate hike until just before Christmas, following this month’s comments from the Federal Reserve. However, Good Friday’s US labour market numbers have the potential to alter these expectations; a stellar showing from the data would lead investors to price-in a Fed rate hike sooner, hurting the risk-driven Kiwi and potentially sending GBP NZD back up through the psychologically-key two to one level. Meanwhile, any suggestion that Greece’s creditors are minded to reject the debt-addled nation’s latest raft of proposed reforms, which it presented them with at the end of last week, would wreak a similar effect on GBP NZD.
Heads Up
Summary of major upcoming data releases that we think may move the market.