Foreign Currency Market Update – GBP / NZD Update
The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate recently achieved a five-year high of 2.3448 as bets the Reserve Bank of New Zealand (RBNZ) intends to cut borrowing costs to counter domestic and global concerns wore on the ‘Kiwi’.
Dips in the price of dairy produce, New Zealand’s key commodity, also took a toll on the South Pacific asset – as did the fight-or-flight currency market risk aversion triggered by the lack of resolution to the Greek crisis. However, over the past five days the GBP/NZD exchange rate has edged back to trade in the region of 2.2968 as the Pound came under pressure of its own.
At the beginning of the week the Pound was trending at 2.3346 against the ‘Kiwi’ as the shock of the Greek populace voting ‘no’ in the national austerity referendum significantly undermined demand for higher-risk assets. As the week progressed, the Pound steadily softened as poor domestic Manufacturing Production data highlighted the dangers of a stronger domestic currency and depleted Bank of England (BoE) interest rate hike expectations. Risk-aversion also eased slightly after Greece was given more time to come up with reform proposals.
The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate lost 1% before the UK budget was presented on Wednesday and hit a low of 2.2924. Over the next couple of days New Zealand’s card spending numbers, the BoE’s interest rate announcement and UK trade data could prompt volatility in the GBP/NZD pairing.
Ecostats from New Zealand to be aware of next week include the Business NZ/Markit PMI for June (which is believed to have held above the 50 mark separating growth from contraction but to have fallen from 51.5 to 51.0) and the nation’s inflation figures for the second quarter. As the inflation result could have a direct impact on the RBNZ’s interest rate outlook, the report is likely to be a catalyst for ‘Kiwi’ fluctuations. The rate of inflation in New Zealand is forecast to print at -0.4% on a quarter-on-quarter basis (down from the first quarter’s -0.3%) and at 0.5% on the year – up from the previous quarter’s annual reading of 0.1%.
The UK’s own inflation data is also due out next week and could help the GBP/NZD pairing return to its recent five-year high if it shows an accelerating pace of consumer price gains. However, economists are currently predicting a return to deflation territory and that result wouldn’t be Sterling supportive. British employment data will be published on Wednesday 15th and will be closely attended to by both investors and BoE policymakers. A drop in joblessness or increase in average earnings would place more pressure on the BoE to adjust interest rates either late this year or early next.
Heads Up
Summary of major upcoming data releases that we think may move the market.