Foreign Currency Market Update – GBP / NZD Update
As global stock markets began to recover from the effects of last week’s Black Monday the ‘Kiwi’ benefitted strongly from a resurgence of risk-sentiment as previously skittish investors returned for a round of profit-taking. Consequently, in spite of having surged to a six-year high at the start of last week, the GBP/NZD exchange rate saw a persistent downtrend and ceded back many of its early gains ahead of the weekend.
Concerns had been raised on Thursday as a prominent dairy producer warned that supply stands to continue outstripping demand in the coming months. They advised that pressure on the commodity’s value and the economies which depend upon it will mount. As Fonterra had previously lowered its forecast for New Zealand output for the next year, estimating a 2% drop-off in production, the chances seem high that any market contractions will strongly impact the domestic sector in particular.
New Zealand’s month-on-month Building Permits report for July on Sunday posted an impressive gain, however, shooting up by 20.4% after the previous month’s figure contracted by -3.3%. Suggesting that the domestic construction market is entering another uptick, this lent the ‘Kiwi’ a small measure of support. However, a return to concerns over the commodity market rather muted any impact that this strong data might have had on the outlook of the New Zealand Dollar.
The NBNZ Business Confidence index for August registered a significant drop yesterday to fall from -15.3 to -29.1 in reflection of the markedly increased pessimism of domestic businesses. Lowering the appeal of the ‘Kiwi’, this led to the GBP/NZD exchange rate surging to a peak of 2.4068 and trending generally positively throughout the rest of the day.
Both the Import and Export Prices for New Zealand showed improvement overnight, with the export figure in particular beating forecast with a 2.1% increase rather than remaining static as had been anticipated. The data prompted the GBP/NZD pairing to slump somewhat, falling from a daily high of 2.4265 to hit 2.4108.
Ahead of tonight’s GlobalDairyTrade auction the ‘Kiwi’ has been making some more limited gains, with predictions suggesting that milk powder will rise in value for the second session in a row, but this buoyancy has been somewhat dampened by more poor figures from China. With both the Chinese Manufacturing and Services PMIs giving evidence of continued contraction in the world’s second largest economy, the longer-term outlook for New Zealand’s key export remains quite grim. Any additional boost the commodity currency may derive from tonight’s result is thus likely to be a rather short-lived one, particularly after last week’s cautions.
Heads Up
Summary of major upcoming data releases that we think may move the market.