Foreign Currency Market Update – GBP / NZD Update
Over the past few weeks the ‘Kiwi’ (NZD) has declined versus its peers amid speculation that the Reserve Bank of New Zealand (RBNZ) will cut the benchmark interest rate in June. Deflationary pressures from an overvalued New Zealand Dollar and ever tighter income from the dairy industry prompted futures traders to forecast a cash rate cut.
In addition to the prospect of looser monetary policy weighing on demand for the Oceanic currency, disappointing domestic data has contributed to this depreciation. Last week’s Employment Change came in below-forecast and the Unemployment Rate held at 5.8% in the first quarter despite predictions of a drop to 5.5%. Over the past week, the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate was trending within the region of 2.0019 to 2.0904. However, much of the GBP/NZD volatility can be attributed to political uncertainty in the UK as the general election weighed on investor confidence.
Monday has seen the New Zealand Dollar continue to soften; a fall that will be welcomed by the RBNZ who have been battling against ‘Kiwi’ resilience for some time. Having predicted that the central bank would initiate an easing cycle in June, ANZ now forecast multiple cuts in both June and July. ANZ bank, Deutsche Bank and ASB Bank all now predict 50 basis points of cuts over the coming months.
Oiling the ‘Kiwi’ slide was a combination of the People’s Bank of China (PBoC) policy easing and disappointing domestic data. The PBoC reduced the 1-year Lending Rate from 5.35% to 5.10% and the 1-year Deposit Rate from 2.5% to 2.25%. Market sentiment was dampened by the cuts and cooled demand for high-yielding assets such as the New Zealand Dollar. Domestic data also weighed on the South Pacific asset’s appeal as both Card Spending and Retail Card Spending declined in April. Against the Pound, The New Zealand Dollar softened by around 1.0% during Monday’s European session.
ooking ahead, Wednesday’s Australasian session will see RBNZ Governor Graeme Wheeler make a speech at a News Conference. This will be closely scrutinised by analysts looking for clues as to the likelihood of cash rate cuts. Additionally, Thursday’s Australasian session will see the Business NZ Performance of Manufacturing Index and Retail Sales ex Inflation report, both of which will be of interest to those invested in the New Zealand Dollar.
Heads Up
Summary of major upcoming data releases that we think may move the market.