Foreign Currency Market Update – GBP / NZD Update
After China’s equity market crashed on Monday, an event since dubbed ‘Black Monday’, the risk-correlated New Zealand Dollar slumped versus its major peers. The fallout from China’s slowing economy also impacted commodity prices, extending the slump and weighing on demand for commodity currencies. The ‘Kiwi’ (NZD) dropped to a six-year low against the British asset as traders avoided currencies with strong links to China.
Also weighing on demand for the Oceanic currency was a speech by Reserve Bank of New Zealand (RBNZ) Deputy Governor Grant Spencer who stated that policy normalisation was still a long way off. Spencer cited ‘the current weakness in export prices, economic activity and CPI inflation’ as the principle reasons which will keep a benchmark rate hike off the table for some time to come. Spencer also stated that surging Auckland house prices are posing increased risk to the nation’s financial stability. This is particularly concerning because the central bank can’t raise the benchmark interest rate to curb demand.
The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate was trending in the region of 2.4242 during Tuesday’s European session having declined by around -0.6%.
Tuesday of this week saw the ‘Kiwi’ rally versus its peers, recovering a fraction of the losses accrued from damp market sentiment on Monday. The appreciation can be linked to the RBNZ third-quarter two-year inflation expectations which came in at 1.94%, higher than the 1.85% expectation in the previous survey. The Nielsen Company, who compiled the report, stated that expectations for the next 12-months rose to 1.46% from 1.32% in the second quarter. The report did state, however, that perceptions of monetary conditions for the year ahead worsened to -56.5% from -42.1% in the preceding quarter.
Also aiding the ‘Kiwi’ uptrend during Tuesday’s European session is continued solidarity in dairy prices. Having dropped to record lows, dairy prices have slowly edged higher with futures looking positive. Russia recently lifted a sanction on importing dairy products from New Zealand which should see heightened demand and add to New Zealand’s exports.
Looking ahead, New Zealand’s economic docket is somewhat sparse of influential data publications over the coming week. ‘Kiwi’ volatility will be therefore subject to ongoing developments in China, market sentiment and commodity prices. Later during Tuesday’s Australasian session New Zealand’s Trade Balance is due for publication which has the potential to provoke changes for the South Pacific asset. In terms of the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate, there will be several influential British data publications which could have an impact. Friday’s Consumer Confidence Survey for August and the preliminary figure for second-quarter Gross Domestic Product will be of significance.
New Zealand’s absence of domestic data is by no means a guarantee of subdued trade. US data is likely to be influential on risk-correlated currencies with futures traders attempting to gauge the Federal Reserve’s rate hike timeline from ecostats. US second-quarter growth and July’s Durable Goods Orders will be the most likely publications to impact the South Pacific currency.
Heads Up
Summary of major upcoming data releases that we think may move the market.