Foreign Currency Market Update – GBP / NZD Update
The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate softened on Monday but remained close to its strongest level since March 2011. As the session got underway the currency pair weakened from a session high of 2.1686 to a low of 2.1606.
A report released by the Confederation of British Industry (CBI) in the early hours softened the Pound against a number of its most traded peers as it showed that the group has cut its growth forecasts for the UK economy as it was concerned that the situation in Greece could have a bigger negative impact on the global economy than expected. The CBI also mentioned the uncertainty which is likely to be created by the UK’s In-Out EU referendum as a potential drag on the economy’s performance.
The CBI now expects the economy to expand by 2.4% this year and by 2.5% next year, down from its February forecasts of 2.7% and 2.6% respectively. The 0.3% expansion seen in the first quarter of 2015 marked the weakest rate of growth seen since 2012.
‘Risks to UK growth are tilted to the downside. A messy resolution of the Greek crisis could financial market and exchange rate volatility which could spill over into the real economy,’ said the CBI in its report.
The New Zealand Dollar meanwhile took advantage of the CBI report to regain some ground against the Pound. Further gains were held in check however as Chinese trade data, speculation that the US Federal Reserve will raise interest rates in September and speculation over a possible interest rate cut by the New Zealand Central Bank all weighed on the ‘Kiwi’.
As China is one of New Zealand’s biggest trading partners, data which showed that Chinese imports tumbled in May had a negative effect upon the New Zealand Dollar. Imports into the world’s second largest economy fell by 17.6% on a year-on-year basis, a figure that was nearly twice as bad as the forecast decline of 10%.
Looking ahead to the rest of the week, we can expect the New Zealand Dollar to come under pressure against its peers as analyst are unsure as to whether the nation’s Reserve Bank will cut interest rates at Thursday’s policy meeting. The ‘Kiwi’ has been under pressure over the past few sessions on bets that the central bank will eventually cut rates from 3.5% to 3% this year.
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