Foreign Currency Market Update – GBP / NZD Update
Over the past week, the New Zealand Dollar fluctuated versus its major peers as a weak US Dollar amid poor US data saw heightened demand for high-yielding assets. The ‘Kiwi’ (NZD) strengthened versus many of its major peers in response to the US Dollar depreciation, but ongoing speculation regarding the Reserve Bank of New Zealand’s (RBNZ) interest rate outlook weighed heavily on demand for the Oceanic currency. With overvaluation plaguing exports, the likelihood of a benchmark rate cut has increased significantly. However, a growing Auckland housing bubble has, thus far, hindered RBNZ policymakers through fears that intervention would only exacerbate house price rises.
Over the past week, the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate was trading within the range of 2.0847 – 2.1334.
Monday has seen the ‘Kiwi’ soften across the board as the US Dollar strengthened in response to increased demand for safe-haven assets. The latest developments in the Auckland housing bubble have also taken a toll as the Government is now determined to intervene. Finance Minister Bill English announced measures to better enforce taxation of capital gains on investment properties. News of government intervention came in shortly after the central bank stated that it will require investors to have a 30% down payment to get a mortgage on Auckland property.
With government intervention easing fears of a growing housing bubble, the RBNZ have been given more licence to cut the benchmark interest rate. There is now a 58% chance of a rate cut in June, up from 48% just a week ago. Should economic data provide weak results, the likelihood of RBNZ policy easing will be heightened significantly. Domestic data during Monday’s Australasian session printed relatively poorly, which aided the ‘Kiwi’ depreciation. The Performance of Services Index dropped from 57.6 to 56.5 in April. With an absence of further domestic publications until Tuesday’s Australasian session, the New Zealand Dollar is likely to continue to soften for the remainder of Monday. With that being said, however, there is the possibility that a weaker US Dollar could stoke demand for the risk-correlated ‘Kiwi’ if US data prints poorly.
For those invested in the New Zealand Dollar; The RBNZ 2-Year Inflation Expectation, ANZ Job Advertisements, Seasonally-adjusted Net Migration, Credit Card Spending and ANZ Consumer Confidence will all be of interest. In addition to the data pertaining to New Zealand, China’s HSBC Manufacturing PMI is likely to have an impact on New Zealand Dollar movement.
The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate is currently trending in the region of 2.1109.
Heads Up
Summary of major upcoming data releases that we think may move the market.