Foreign Currency Market Update – GBP / NZD Update
Sentiment towards the New Zealand Dollar has continued to weaken over the last week as data has remained generally unsupportive of the South Pacific currency following the revelation that the domestic trade deficit unexpectedly widened in September.
Although the Reserve Bank of New Zealand (RBNZ) voted on Wednesday to leave interest rates unchanged policymakers proved generally dovish, with Governor Graeme Wheeler warning that imminent monetary loosening could still be required in order to support the domestic economy. With the relative strength of the ‘Kiwi’ holding back trade and potentially damaging the recovery of the local economy, traders were not left with an overly-positive impression of the country’s longer-term outlook.
This followed a more hawkish Federal Open Market Committee (FOMC) statement, which indicated that a December interest rate rise was still under consideration. As this sent the US Dollar on a bullish run across the board markets were pushed into a greater mood of risk aversion, moving away from more exposed commodity-correlated currencies like the ‘Kiwi’ in response to the possibility of higher borrowing costs. In spite of Fed policymakers dismissing concerns over the current strength of the global economy, investors remained worried of the adverse impact that an interest rate hike could have at this juncture.
Towards the end of the week, however, the GBP/NZD exchange rate returned to a downtrend as the third quarter US GDP and Personal Consumption Expenditure figures printed at weaker levels than had been expected. With more limited economic growth and inflationary pressure the odds of a 2015 interest rate rise took a bit of a blow, suggesting that policymakers may not have sufficient cause to increase rates if the local economy appears unable to support the central bank’s first hike since the financial crash.
Monday’s UK Manufacturing PMI defied expectations of a slight decline to instead soar from 51.8 to 55.5, indicating that the sector had experienced its strongest growth in sixteen months. While this saw the Pound climbing across the board, pushing the GBP/NZD exchange rate to a fortnightly high of 2.2969, some economists were a little more cautious in their assessment of this result. As this sharp expansion is unlikely to prove sustainable for the remainder of the quarter the pairing did ultimately cede back some of its ground, despite remaining on a positive trend.
Ahead of tonight’s third quarter New Zealand Unemployment Rate and the latest GlobalDairyTrade auction investors have been showing decided reticence towards the ‘Kiwi’, with the South Pacific currency on a strong downtrend against rivals. Forecasts suggest that the number of unemployed within the country will have risen marginally from 5.9% to 6.0%, which would continue to paint a less than encouraging picture of the robustness of the local economy. If dairy prices also remain in a state of decline the New Zealand Dollar is likely to slump further this week.
Heads Up
Summary of major upcoming data releases that we think may move the market.