Foreign Currency Market Update – GBP / NZD Update
Over the past month, the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate has dropped from a high of 2.4604 to 2.2724.
The New Zealand Dollar has strengthened considerably versus peers like the Pound over the past few weeks with the appreciation being linked to the combination of a resurgence of trader risk-appetite, rising dairy prices and speculation of long-term delays to a Federal Reserve benchmark interest rate hike. Particularly supporting demand for the ‘Kiwi’ (NZD) has been vastly improved market sentiment resulting from signs of stability in the Far East. China’s Shanghai Composite Index has now advanced at the close of trade every day since the equity market reopened from a 5-day holiday.
Over the past few months dairy prices have risen and with the emergence of the Trans-Pacific Partnership trade deal, the potential for vastly improved exports has aided the New Zealand Dollar uptrend. However, the high-valued ‘Kiwi’ will hinder export growth, a problem which is likely to be addressed by the Reserve Bank of New Zealand (RBNZ). After finally managing to get the New Zealand Dollar to an appropriate value, after easing policy on several occasions, the RBNZ is likely to fear the recent uptrend.
The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate dived by around -0.5% during Tuesday’s European session.
After British inflation moved into negative territory, the Pound softened versus its major peers. This saw the British asset decline against the ‘Kiwi’ despite poor imports data out of China. China’s imports contracted by -20.4% on the year in September. This was particularly detrimental for New Zealand not only because China imports a great deal from the South Pacific nation, but also because global stock markets ended a 9-day rally. That had a negative impact on trader risk-appetite and weighed on demand for the Oceanic currency. However, the ‘Kiwi’ managed to advance against some of its currency rivals thanks to robust gains in dairy prices following last week’s global dairy auction.
The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate is currently trending in the region of 2.2769.
Looking ahead, the outlook for the New Zealand Dollar is difficult to gauge. This is primarily because the RBNZ would like to see the domestic asset devalued, but dairy prices continue to advance. Uncertainty regarding the timing of a Federal Reserve rate hike is also provoking the New Zealand Dollar uptrend. During Thursday’s Australasian session New Zealand’s third-quarter Consumer Price Index is likely to have a significant impact on ‘Kiwi’ volatility. Data out of China and North America will also impact the South Pacific asset.
In terms of British data, Wednesday’s labour market reports will likely have the greatest impact on the GBP/NZD exchange rate. However, with British inflation falling to -0.1%, the Pound is unlikely to rack up any significant gains for the remainder of this week’s trade.
Heads Up
Summary of major upcoming data releases that we think may move the market.