Foreign Currency Market Update – GBP / NZD Update
The past five days proved to be rocky ones for the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate, with the pairing fluctuating between highs of 2.3799 (around its strongest level for more than five years) and lows of 2.3313.
While last week began fairly positively for the Pound, the British currency steadily declined against most of its main currency counterparts from Tuesday onwards. Sterling losses were initially triggered as Chancellor of the Exchequer George Osborne asserted his intention to introduce additional spending cuts in 2015 as the austerity measures raised concerns that the UK economic recovery could be derailed.
The Pound managed to stage a rebound on Wednesday as the minutes from the Bank of England’s (BoE) latest policy meeting indicated that as many as three policymakers might vote for higher borrowing costs at the August gathering, but its uptrend against the New Zealand Dollar didn’t last long. In an unexpected turn of events the ‘Kiwi’ rallied across the board following the Reserve Bank of New Zealand (RBNZ) policy statement in spite of the central bank cutting borrowing costs. The 25 basis point cut actually bolstered demand for the New Zealand Dollar as investors had been primed for a larger revision. Thursday’s unexpected slump in UK retail sales piled further pressure on Sterling and drove the GBP/NZD exchange rate to its lowest level of the week.
However, before the weekend, the Pound Sterling to New Zealand Dollar exchange rate stabilised somewhat as below-forecast Chinese manufacturing data heightened fears regarding the slowdown in the world’s second largest economy. The Caixin/Markit Manufacturing PMI moved further into contraction territory in July by falling from 49.4 to 48.2. A modest increase had been expected. The data triggered a massive drop-off in commodity prices at the close of the week and currencies like the New Zealand Dollar, Australian Dollar and South African Rand weakened accordingly.
At the start of a new week of trading the Pound posted fairly broad-based declines in reaction to comments issued by the Bank of England’s (BoE) chief economist Andy Haldane. Last week hopes of a 2015 interest rate adjustment from the BoE were raised by the central bank’s meeting minutes, but Haldane appears determined to quash that positive sentiment. Earlier in the year the economist observed that UK borrowing costs are as likely to be cut as increased and he’s now followed up those comments by stating that there’s ‘no rush to move rates from where they are right now’.
Tuesday could see the GBP/NZD exchange rate return to trending at multi-year highs if the UK’s second quarter growth data impresses. The British economy is believed to have expanded by 0.7% on a quarter-on-quarter basis in the three months through June, a sturdy increase on the 0.3% growth recorded in the first quarter. A figure of 0.7% or higher would bolster BoE rate hike speculation once more and could send Sterling broadly higher.
In terms of ecostats from New Zealand, the only reports to really be aware of include the nation’s building permits figure (out on Wednesday) and the NBNZ Business Confidence index for July. An increase in building permits or an improvement in sentiment would be ‘Kiwi’ supportive. That being said, the GBP/NZD exchange rate is also likely to be affected by US news and commodity price shifts this week.
On Tuesday the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate was trending in the region of 2.3316
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