Foreign Currency Market Update – GBP / NZD Update
The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate spent another week trending around multi-year highs, with the pairing moving from lows of 2.2730 to highs of 2.3411. A lack of influential economic reports for New Zealand meant that developments in Greece and UK news were the main causes of fluctuations in the pairing. While ongoing Grexit concerns reduced demand for higher-risk and commodity-driven currencies, the Pound was variously supported by hawkish Bank of England (BoE) interest rate remarks and pressured by below-forecast employment numbers.
On Wednesday the New Zealand Dollar failed to follow its Australian relation higher following the publication of better-than-forecast ecostats for China – one of New Zealand’s main trading partners. The annual rate of expansion in China held at 7.0% in the second quarter rather than slowing to 6.9% while industrial production exceeded estimates for a 6.0% year-on-year increase by rising 6.8%. Finally, retail sales climbed 10.6% on the year in June, beating the 10.2% gain projected.
While the ‘Aussie’ edged higher in response to the run of reports, the ‘Kiwi’ was more cautious as Greek PMs debated the nation’s bailout agreement and investors looked ahead to the publication of New Zealand’s inflation data for the second quarter. Economists have forecast that Consumer Prices printed at 0.5% in the second quarter of the year on a quarter-on-quarter basis following the contraction of -0.3% recorded in the first quarter. This would result in an annual inflation rate of 0.3%, an improvement on Q1’s 0.1%. If domestic inflation picks up it might deter the Reserve Bank of New Zealand (RBNZ) from slashing borrowing costs in the near future. The prospect of a period of interest rate stability would be New Zealand Dollar-supportive. The nation is also set to publish its Business NZ Performance of Manufacturing Index, which came in at 51.5 in May. A move further above the 50 mark separating growth from contraction would boost the ‘Kiwi’.
Next week the major market-mover for the GBP/NZD currency pair will be the RBNZ interest rate announcement, taking place on Wednesday 22nd. Economists are expecting borrowing costs to be left on hold but a surprise adjustment, or hints that rates will be cut in the near future could take a heavy toll on the New Zealand Dollar and would have the potential to drive the GBP/NZD pairing to new highs. New Zealand’s trade balance figures are also scheduled for publication on July 23rd. In terms of UK news, the reports most likely to impact GBP/NZD trading include the minutes from the last (BoE) interest rate decision and the nation’s retail sales report for June.
Heads Up
Summary of major upcoming data releases that we think may move the market.