Foreign Currency Market Update – GBP / NZD Update
Over the past few weeks the ‘Kiwi’ (NZD) has softened versus the majority of its peers. The decline is mostly the result of mounting speculation that the Reserve Bank of New Zealand (RBNZ) will cut the benchmark interest rate during the next policy meeting. Additional losses can be attributed to relatively damp trader risk-appetite as geopolitical strain in Europe continues to hamper market sentiment. Over the past week, the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate advanced from a low of 1.9808 to 2.0345.
Although RBNZ policymakers opted to hold the cash rate at 3.50% at their most recent policy meeting, the accompanying press release saw a shift towards an easing bias. Deflationary pressures amid low commodity prices are weighing heavily on New Zealand’s economic progress which prompted policymakers to consider looser monetary policy. ‘The bank expects to keep monetary policy stimulatory and is not currently considering any increase in interest rates,’ RBNZ Governor Graeme Wheeler said, adding, ‘It would be appropriate to lower the OCR [official cash rate] if demand weakens and wage and price-setting outcomes settle at levels lower than is consistent with the inflation target.’ Tuesday’s domestic labour market data will be of significance as the RBNZ has highlighted that any disappointment in the sector will weigh on monetary policy. Both Employment Change and Unemployment Rate are forecast to show positive declination.
The likelihood that the central bank will cut rates increased on Tuesday after their Oceanic neighbour saw fit to ease policy. Over the past week, the New Zealand Dollar to Australian Dollar (NZD/AUD) exchange rate was trending within the parameters of 0.9509 to 0.9692. Aiding the ‘Kiwi’ decline has been dampened market sentiment as the fractious relationship between Greece and Eurozone officials continues to weigh on risk-appetite. With differing opinions as to the effect of a Greek exit from the Eurozone on the wider currency market, investments in high-yielding assets have cooled significantly.
Commodity prices have also had an impact on the New Zealand Dollar. With global dairy prices continuing to fall, Fonterra cut forecast payout by 4.25%, reflecting volatile prices amid oversupply. This has had a marked effect on the ‘Kiwi’ as New Zealand is the world’s foremost dairy exporter. ‘We have confidence in the long-term fundamentals of international dairy demand, however the market has not yet rebalanced and Global Dairy Trade prices for products that inform our Farmgate Milk Price have fallen 23 per cent since February,’ chairman John Wilson said in a statement. On Tuesday, the New Zealand Dollar to Pound Sterling (NZD/GBP) exchange rate declined by over -0.50%.
Heads Up
Summary of major upcoming data releases that we think may move the market.