Foreign Currency Market Update – GBP / NZD Update
In the past five days the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate has recovered from lows of 2.2683 to return to trending around five-year highs of 2.3263. Last week was dull in terms of economic reports for the UK and the few figures New Zealand released had little impact on the ‘Kiwi’ in the face of growing Grexit fears.
At the beginning of last week New Zealand’s Westpac Consumer Confidence gauge for the second quarter dropped from 117.4 to 113. This result was seen to reflect concerns that the Reserve Bank of New Zealand (RBNZ) is just getting started on its interest rate cutting cycle and the ‘Kiwi’ softened accordingly. However, despite this slide in sentiment, consumer spending proved robust during the second quarter and credit card spending in the nation increased by a sturdy 1.9% in May, month-on-month. The only other notable ecostat for New Zealand was the nation’s Trade Balance report. Although New Zealand’s trade surplus widened unexpectedly, any subsequent gains in the domestic currency were limited by the news that exports of milk powder, butter and cheese dropped 28%.
As a fresh week of trading got underway the GBP/NZD exchange rate was holding close to a multi-year high as investors ditched higher-risk currencies in response to the latest developments in Greece. The Hellenic nation announced it would be holding a referendum on Sunday 5th to decide whether or not to accept the austerity measures put forward by creditors, and this move was seen to substantially raise the odds of the nation leaving the Eurozone. The introduction of capital controls and an extended emergency bank holiday on Monday also pressured assets like the New Zealand and Australian Dollars lower.
While the ‘Kiwi’ did claw back losses against the Pound later in the European session as the Euro’s free-fall stabilised and a Bank of England (BoE) official indicated UK rate cuts could be on the way, the New Zealand Dollar softened once more in response to disappointing domestic data. As any negative data could encourage the RBNZ to slash borrowing costs further, demand for the New Zealand Dollar fell as domestic Building Permits stagnated in May, month-on-month, after sliding 0.9% in April. New Zealand’s ANZ Activity Outlook Index also plummeted from 32.6 to 23.6 while the NBNZ Business Confidence Measure eased to -2.3 in June from 15.7 in May.
Meanwhile, the Pound recouped some of its previous declines after the UK’s GfK Consumer Confidence index leapt from 1 to 7 in June and final first quarter growth numbers were upwardly adjusted. As the week progresses additional Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate movement could be caused by China’s Manufacturing/Services PMI as well as New Zealand’s House Prices and Commodity Prices reports. The GBP/NZD pairing may also be able to hit fresh highs if the week’s UK Manufacturing, Services and Composite PMIs show a sturdy rate of UK expansion in June. Of course, any developments in the Greek situation are likely to have a far-reaching impact on the currency market in the lead up to Sunday’s referendum.
Heads Up
Summary of major upcoming data releases that we think may move the market.