Foreign Currency Market Update – GBP / NZD Update
Although the New Zealand Dollar initially advanced across the board after the Reserve Bank of New Zealand (RBNZ) cut interest rates in July (as the revision to borrowing costs was less severe than anticipated) the ‘Kiwi’ went on to resume its previous downtrend as commodity prices crashed and China provided cause for concern. The GBP to NZD exchange rate advanced from a low of 2.3189 at the beginning of last week to achieve a high of 2.3834 before tapering off ahead of the weekend as reduced US interest rate hike expectations increased demand for higher-risk assets.
As influential data from New Zealand was in short supply last week, UK news was the primary driver behind GBP/NZD shifts for the first half of the session. On Tuesday Sterling surged against the New Zealand Dollar and a number of its other most-traded currency counterparts after the UK’s second quarter growth data confirmed quarterly expansion of 0.7%, up from growth of 0.4% in the first three months of the year. The annual rate of expansion, 2.6%, was down slightly from the first quarter’s year-on-year figure of 2.9% but in line with forecasts.
The Pound derived further support from data showing that UK mortgage approvals were at a seven-year high in June. However, the ‘Kiwi’ staged something of a rebound before the weekend as US earnings numbers revealed that wages increased at the slowest quarterly rate on record in the three months through June. The data was seen to reduce the odds of the Fed adjusting borrowing costs in September and made up for the negative impact of a -4.1% drop in New Zealand’s building permits and an unexpected plummet in the nation’s Business Confidence index.
However, the New Zealand and Australian Dollars both received a blow over the weekend as China’s Manufacturing PMI printed at 50.0 in July rather than 50.1 as expected. With this measure of manufacturing now right on the boarder separating growth from contraction, commodity prices took another battering and demand for commodity-driven currencies also decreased. The situation reversed again on Tuesday though as the Reserve Bank of Australia (RBA) opted to leave interest rates on hold, spurring hopes that both South Pacific central banks might pursue a policy of steady interest rates for the rest of the year. The GBP/NZD pairing fell to a low of 2.3574 on Tuesday.
Economists aren’t expecting the New Zealand Dollar’s current uptrend to last however, especially in light of upcoming domestic employment data. New Zealand’s unemployment rate is believed to have risen from 5.8% in the first quarter to 5.9% in the second as the rate of job creation slowed. The latest GlobalDairyTrade auction is also expected to reveal a further decline in the price of dairy produce – a key New Zealand commodity. Furthermore, the GBP/NZD exchange rate has the potential to advance to fresh multi-year highs if this week’s Bank of England (BoE) inflation report contains positively revised growth and inflation projections.
On Tuesday the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate was trending in the region of 2.3605
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