Foreign Currency Market Update – GBP / NZD Update
Last week the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate advanced from lows of 2.2193 to achieve highs of 2.3021 before markets closed on Friday. The pairing was already trending strongly thanks to the Reserve Bank of New Zealand’s (RBNZ) surprising decision to cut interest rates at its last policy gathering, but a combination of positive UK reports and disappointing NZ growth data helped GBP/NZD advance to its best level in over five years.
The Pound jumped against the majority of its currency counterparts last week as investors responded to a run of encouraging UK reports and the improved Bank of England (BoE) rate hike expectations they occasioned. The UK was shown to have emerged from deflation while average earnings increased and retail sales climbed unexpectedly. All of this prompted economists to bet that the pace of UK expansion accelerated in the second quarter of the year and Sterling surged accordingly.
As well as gaining on the ‘Kiwi’, the Pound advanced on the US Dollar, Euro, Australian Dollar and Canadian Dollar over the course of the week. The GBP/NZD pairing registered a 600-pip gain on Wednesday due to bets that the RBNZ intends to cut borrowing costs further and largely held gains following the publication of New Zealand’s latest Gross Domestic Product (GDP) report. Economists had projected that the domestic economy would expand at a pace of 0.6% in the first quarter of 2015, quarter-on-quarter, and record an annual figure of 3.1%. However, the nation only actually expanded by 0.2% on the quarter and 2.6% on the year, supporting the case in favour of additional action from the RBNZ.
When markets reopened after the weekend a risk-off environment, inspired by the ongoing Greek bailout negotiations, prevented the New Zealand Dollar from benefiting from an increase in domestic credit card spending. Card spending rose by 1.9% month-on-month in May, up from the -0.4% drop recorded in April, and advanced 7.1% on the year. New Zealand’s other report was less impressive, with the Westpac Consumer Confidence index sliding from 117.4 to 113.
However, the New Zealand Dollar was able to gain modestly on Tuesday as substandard durable goods orders data for the US upped the odds of the Federal Reserve leaving borrowing costs at record lows. China’s Manufacturing PMI also moved closer to the 50 mark separating growth from contraction. With no UK data to bolster the Pound, the GBP/NZD pairing fell back to trending in the region of 2.2994.
Over the rest of the week ecostats for both the UK and New Zealand are in fairly short supply. While the British data – perhaps excluding Wednesday’s BBA Loans for Home Purchase number – is unlikely to have much of an impact on GBP/NZD trading, the pairing could experience some fluctuations in response to New Zealand’s trade balance figures, scheduled for release on Thursday. The nation’s trade surplus is believed to have become a deficit in May, and if that proves to be the case the Pound Sterling to New Zealand Dollar exchange rate could achieve fresh highs.
Heads Up
Summary of major upcoming data releases that we think may move the market.