Foreign Currency Market Update – GBP / NZD Update
To the detriment of the ‘Kiwi’ the NBNZ Business Confidence index plunged far further than had been forecast at the start of last week, going from -12.31 to -29.1 in August. This dismal result consequently drove the GBP/NZD exchange rate up towards a weekly peak of 2.4272. With this measure of economic sentiment now at its lowest level in more than five years, the South Pacific currency entered a strong downtrend against rivals on Monday, not particularly helped by the atmosphere of risk aversion that was returning to the markets.
Both the New Zealand Import and Export Prices for the second quarter showed notable improvement that evening, however, with the value of exports in particular outstripping estimates to clock in at strong growth of 2.1%. While this appeared to show that the negative impact of the recent raft of disappointing Chinese figures on its trading partner wasn’t as bad as feared, the ‘Kiwi’ did not have long to benefit before the Chinese Manufacturing PMI sank into contraction territory on Tuesday.
The week’s GlobalDairyTrade auction, in spite of some pessimistic predictions, saw the value of milk solids rise for the second session in a row to edge further away from the proximity of the twelve-year low reached last month. This was not conclusively positive for the ‘Kiwi’ though, as at least some of this boost was attributable to Fonterra having reduced the volume of product offered for sale to counteract the effect of recent over-supply. As global production seems likely to continue to outpace demand over the coming months, concerns will no doubt continue to rise in response to the possibility of industry contraction and job losses.
Following the downtrend of both the UK’s Manufacturing and Construction PMIs, the domestic Services PMI clocked in below forecast at 55.6 rather than 57.7 on Thursday. As the services sector contributes the largest proportion to the nation’s GDP this shortfall propelled the GBP/NZD exchange rate to slump to 2.3804.
While the employment data from the US on Friday was mixed it nevertheless failed to put an end to fevered speculation over the date of the potential Fed interest rate hike, undermining the ‘Kiwi’ as traders struggled to decide how to approach to the situation. Although the Change in Non-Farm Payrolls proved lower than anticipated, the US Unemployment Rate fell to 5.1%, its lowest level since 2008 and comfortably within the Fed’s target range. With a September take-off still possibly on the cards, the New Zealand Dollar naturally suffered, prompting the GBP/NZD pairing to climb back to 2.4207 ahead of the weekend.
As China’s stock markets opened at a loss today and fell by 2.5% throughout trading, this encouraged another increase in risk aversion amongst pundits, weighed on the ‘Kiwi’ and allowed the GBP/NZD exchange rate to surge strongly to 2.4406. Trading on the South Pacific currency is likely to remain dovish as Wednesday’s Reserve Bank of New Zealand (RBNZ) Rate Decision approaches. Expectations suggest that the RBNZ will opt to cut rates to 2.75%, a move that will not particularly benefit the strength of the ‘Kiwi’ as this juncture.
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