Foreign Currency Market Update – GBP / NZD Update
The Pound Sterling New Zealand Dollar exchange rate traded up to close to the two to one threshold on the first day of this month, but a combination of a weakening UK unit and a recovery from the Kiwi sent the pair down into the 1.9300s during late trading on Friday.
The New Zealand tender has enjoyed broad support since the US Federal Reserve heavily hinted that it will not be increasing its key interest rate until much later this year. The latest US policy meeting, which was held during the middle part of last month, saw the Fed’s rate-setters drop their advice that they would remain ‘patient’ regarding the timing of a tightening of their policy. However, their instruction that further improvement would be required in the US jobs market before a rate hike could take place assuaged investors’ fears that a rate increase might be close at hand.
Last Wednesday brought the publication of the minutes of the March 17-18th Fed meeting. The memos noted that, ‘several participants judged that the economic data and outlook were likely to warrant beginning normalisation at the June meeting.’ This message generally surprised market participants and the possibility that the world’s leading central bank might be ending its ‘easy money’ policy as soon as the early part of Summer has the potential to weigh down the risk-driven Kiwi moving forward.
However, the GBP NZD exchange rate continued falling during the second half of last week as investors shifted out of Sterling-denominated assets. A poor set of British construction sector figures and a below-par reading from the latest UK Industrial Output survey last week led many commentators to surmise that the overall level of domestic GDP may have eased back during the first quarter of this year. Official figures showed that the UK economy expanded by 0.6% during the final quarter of last year and some analysts believe that political uncertainty triggered by the upcoming general election will have caused reduced levels of growth in the three months leading up to the end of March.
Looking ahead, tomorrow morning’s UK inflation figures are likely to be defining in the short to medium term for GBP NZD. Analysts are anticipating a showing of 0.0% for the annualised version of the March data. Anything below this and the British economy will have officially slipped into deflation; Sterling would suffer broad selling pressure in such a circumstance and GBP NZD could track down towards its 18-month low of 1.9084. Conversely, a showing of above zero for the key CPI price rise number could spark fresh market babble regarding a Bank of England interest rate hike, causing GBP NZD to shift higher from last week’s low of 1.9378.
Heads Up
Summary of major upcoming data releases that we think may move the market.