Foreign Currency Market Update – GBP / NZD Update
China continues to represent the largest market for New Zealand’s numerous exporters, so official trade data out of Beijing at the start of last week’s session had a pronounced effect on the Kiwi. A year-on-year drop of over 12.0% in the volume of shipments into China held back the Kiwi during the first half of the week and the GBP NZD exchange rate shot up from an opening level of 1.9433 on Sunday night to touch 1.9723 during Monday trading.
Chinese Gross Domestic Product data, published early on Wednesday, added to the concerns for New Zealand’s exporters. The official figures showed that the pace of expansion of the world’s second largest economy has slipped from an annualised 7.3% during the final three months of 2014 to 7.0% in the three months leading up to the end of March.
The New Zealand unit improved against the Pound during the latter stages of the week in spite of concerns over the Greek debt situation. The news that the debt-addled Hellenic state had made an ‘informal approach’ to the International Monetary Fund aimed at delaying its next round of bail-out payments raised alarm bells for investors and global risk appetite slid as a result.
This Friday could represent D-Day for Greece – if the nation’s leaders do not reach a debt deal with its creditors in time for the weekend market close, then commentators suggest that there is a real chance that the Athens administration will be forced to default on its loans. The prospect of a disorderly Greek exit from the euro could sap the market of appetite for risk, suppressing the high-yielding New Zealand Dollar and sending GBP NZD up towards its 1st April peak of 1.9998.
Sunday night’s New Zealand Q1 inflation data significantly undershot expectations, printing at a year-on-year 0.1%. The counterpart figure for the final three months of 2014 had indicated price rises of 0.8%; the pronounced drop in the pace of Kiwi inflation takes away the near-term potential for a Reserve Bank of New Zealand interest rate increase. In spite of this, the GBP NZD exchange rate tumbled to a fresh 3-month low of 1.9358 following the NZ data as investors instead focussed instead on the uncertain outcome of next month’s UK General Election. If these concerns grow, then GBP NZD may break downwards towards its 18-month low of 1.9084. However, the reduced prospect of a RBNZ rate hike could see the market move against the Kiwi, sending GBP NZD higher once more.
Heads Up
Summary of major upcoming data releases that we think may move the market.