Foreign Currency Market Update – GBP / NZD Update
The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate experienced extensive market movement over the course of last week as the British currency enjoyed a broad-based rally. The GBP/NZD currency pair recorded an almost ten cent gain against the New Zealand Dollar within ten days, peaking at 2.3988.
While slumping commodity prices, persistent Grexit concerns and the prospect of higher borrowing costs in the US all kept the New Zealand Dollar under pressure, the Pound was able to advance in response to hawkish commentary from several high-profile Bank of England (BoE) officials and an acceleration in UK average earnings. Both BoE Governor Mark Carney and policymaker David Miles indicated that interest rates will need to be revised around the turn of the year as the domestic inflationary climate improves and global economic stability returns following an intensive six months of Greek drama.
UK average earnings, meanwhile, increased from 2.7% to 3.2% excluding bonuses and from 2.7% to 2.8% including bonuses. The impressive wage growth helped counter the negative impact of a surprise increase in UK unemployment from 5.5% to 5.6% and kept the Pound trending higher.
With the BoE becoming more hawkish, the dovish attitude of the Reserve Bank of New Zealand (RBNZ) was more pronounced and contributed to the GBP/NZD exchange rate’s shift to a five-and-a-half year high. Economists are expecting the RBNZ to slash borrowing costs from 3.25% to 3.0% in tonight’s gathering, following in the rate-cutting footsteps of the Reserve Bank of Australia (RBA) and Bank of Canada (BOC). Although a negative revision to interest rates has already been factored into the market to a certain extent, a cut would still drive the New Zealand Dollar broadly lower during the Australasian session. Conversely, if the central bank defies forecasts and leaves borrowing costs on hold, we could see the ‘Kiwi’ rally.
On Wednesday the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate advanced by more than 1.2% as investors responded to the minutes from the latest BoE policy meeting. While the minutes showed that the nine-member Monetary Policy Committee (MPC) was united in its decision to leave borrowing costs on hold in July, it was inferred that members might be inclined to vote for an immediate adjustment in August.
The situation in Greece, which was at its peak when the BoE meeting was held, has now calmed to an extent where it is unlikely to have an impact on UK fiscal policy and some policymakers have apparently expressed concerns that the risks of inflation advancing beyond the central bank’s 2% target are increasing – both developments which support the case in favour of higher borrowing costs.
While the RBNZ interest rate announcement is undoubtedly going to be the main cause of GBP/NZD exchange rate movement this week, investors with an interest in the pairing will also be looking to the UK’s retail sales report (out tomorrow) and New Zealand’s trade balance data for June. Next week the only report to be aware of from New Zealand is the nation’s building permits figure. News from the UK, including second quarter GDP and the GfK Consumer Confidence index will also be having an effect on GBP/NZD movement.
On Wednesday the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate was trending in the region of 2.3722
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