Foreign Currency Market Update – GBP / NZD Update
The past week saw the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate climb from a low of 2.3770 to a high of 2.3994, although the currency pair experienced a significant decline after the UK Employment and Weekly Earnings figures failed to meet with expectations.
Last week the Pound closed out trading in a stronger position against the ‘Kiwi’ despite dropping considerably on Wednesday and extending declines on Thursday. The path to the Pound’s weekly high started on Tuesday, when the People’s Bank of China (PBoC) made the surprise decision to lower the Chinese Yuan’s value by around -2.0%. This came after a series of disappointing Chinese data releases prompted the central bank to take action to promote long-term Chinese economic growth. The move was disastrous for the Antipodean currencies as New Zealand and Australia are dependent on China as one of their biggest export partners. The New Zealand Dollar dived and the Pound took full advantage of the downtrend.
The Yuan devaluation continued on Wednesday and the Pound initially continued to rise against the ‘Kiwi’ but these gains were soon lost after the release of a number of negative UK ecostats. The UK Employment Change for the three months to the end of July caused some damage to the Pound as instead of showing the forecast drop of -55K positions they showed a -63K decrease. The bad news continued with the annual Average Weekly Earnings for the three months through June, which only showed a 2.4% increase rather than the predicted 2.8%. The Jobless Claims figure for July was actually positive, showing a -4.9K reduction in the number of claims, but this was not enough to outweigh the negative impact from the other two results.
The Pound regained its advantage on Thursday as the PBoC devalued its currency for a third day in a row. The third reduction in the Yuan’s value took its total decline to -5% over the three days and pushed the Pound to New Zealand Dollar exchange rate to a daily high of 2.3805.
The Pound dipped slightly against the ‘Kiwi’ on Friday when the PBoC decided to raise the Yuan’s value by 0.05%, a sign of the central bank’s intention to stabilise the Chinese currency. The Pound was also harmed by information closer to home: the UK monthly and yearly Construction Output figures fell short of forecasts, although both results were positive.
This week, Pound Sterling/New Zealand Dollar (GBP/NZD) exchange rate movement may occur as a result of the UK annual CPI for July, the US annual CPI for July, the UK annual Retail Sales figures and the New Zealand monthly and yearly Credit Card Spending results for July. The UK CPI figure (due tomorrow) is forecast for stagnation, which won’t benefit the Pound as speculators are looking for an increase to link with a UK interest rate hike. The US CPI (out on Wednesday) has been forecast for marginal growth, which if accurate will devalue the ‘Kiwi’ due to rising hopes for a US interest rate increase. The UK Retail Sales figures have both been forecast for growth, but no forecast has been given for the New Zealand Credit Card Spending results. An increase in spending could mean an increase in consumer confidence and the ‘Kiwi’ may rise if the data prints well.
Heads Up
Summary of major upcoming data releases that we think may move the market.