Foreign Currency Market Update – GBP / NZD Update
Over the past week, the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate was trending within the parameters of 2.0917 – 2.1479, having reached a four-year high at its peak. For some time now that New Zealand Dollar has been trending lower versus many of its major rivals in response to speculation that the Reserve Bank of New Zealand (RBNZ) will cut the cash rate to devalue the ‘Kiwi’ (NZD). However, after the RBNZ made a fractional upwards revision to the nation’s 2-year inflation expectation, those fears eased somewhat. The prospect of further easing still looms, however, after tighter rules were implemented on Auckland housing investments; fuelling speculation that the RBNZ will want to make sure the housing bubble is contained before cutting rates.
In addition to expectations of policy easing weighing on ‘Kiwi’ investment, a stronger US Dollar and dampened market sentiment are also causing headwinds for the Oceanic asset. The US Dollar strengthened across the board over the past week thanks to a combination of improved domestic data and hawkish statements from Federal Reserve officials. Fed Chair Janet Yellen intimated that a rate hike cycle is likely to liftoff in 2015 which saw heightened demand for the US asset. With the US Dollar surging, demand for higher-yielding currencies, such as the New Zealand Dollar, dampened considerably. Also weighing on the ‘Kiwi’ is geopolitical tensions in Greece. With the Hellenic nation looking increasingly likely to default on future loan repayments, market sentiment and demand for risk-correlated currencies cooled significantly.
The ‘Kiwi’ continued to soften versus its major rivals on Monday after mixed domestic data wasn’t enough to overshadow Dollar strength and Greek woes. Whilst New Zealand’s Trade Balance data showed April’s Trade Surplus narrowed by less-than-expected, both imports and exports failed to meet with median market forecast figures. With a complete absence of domestic data to provoke changes on Tuesday, the South Pacific asset continues to trend lower versus most of its rivals. With several influential US data publications due later on Tuesday, however, there is the potential for a ‘Kiwi’ recovery should the US ecostats produce weak results.
Looking ahead, the economic docket is looking relatively sparse for New Zealand over the remainder of the week. For those invested in the Oceanic currency; Building Permits, ANZ Activity Outlook, and NBNZ Business Confidence will be of interest. However, it is safe to say that the majority of New Zealand Dollar volatility over the remainder of the week will be in response to US Dollar movement, geopolitical tensions and commodity price shifts. Also, should any officials make a statement with policy easing rhetoric, the New Zealand Dollar will likely soften considerably.
Heads Up
Summary of major upcoming data releases that we think may move the market.