Foreign Currency Market Update – GBP / NZD Update
Over the past seven days the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate was trending within the range of 2.3094 to 2.3636.
Last week the New Zealand Dollar fluctuated considerably in response to volatile Chinese stock prices and US Dollar positioning. Towards the close of last week, however, the ‘Kiwi’ (NZD) racked up significant gains versus the majority of its currency rivals. The appreciation was the result of news that the People’s Bank of China (PBoC) eased lending conditions to smaller banks. This fuelled hopes of heightened demand for New Zealand’s commodity exports. ‘Kiwi’ gains were somewhat limited, however, with weak dairy prices continuing to weigh on demand. At the most recent Global Dairy Trade auction dairy prices were reduced for the third-consecutive auction, with futures showing little sign of improvement.
Meanwhile, the Pound saw volatility in response to a mixed-bag of domestic data results. With futures traders looking for clues as to the timing of a Bank of England (BoE) benchmark rate hike, domestic data results are having a heightened influence over Sterling movement. Towards the close of last week the Pound dived versus its peers following weak government spending data. Public sector finances saw the biggest deficit in any October since 2009 which saw the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate drop to weekly lows of around 2.30.
At the close of Monday’s Australasian session the New Zealand Dollar slumped versus its major peers as commodity prices extended their rout. With weak demand for commodities from the world’s second-largest economy, the Shanghai Composite Index ended the Asian session close to -0.6% lower. This has caused many traders to question the effectiveness of PBoC intervention. Also weighing heavily on the New Zealand Dollar is improved hopes of a December Federal Reserve benchmark rate hike. With the Reserve Bank of New Zealand (RBNZ) flirting with easing policy against the backdrop of weak commodity prices, the prospect of widening policy divergence between the Fed and the RBNZ could hurt the Oceanic currency in the long-term. The ‘Kiwi’ (NZD) slump was somewhat slowed, however, thanks to October’s seasonally-adjusted Net Migration which rose from 5600 to 6210.
On Monday morning the Pound has seen a mixed performance versus its currency rivals. Appreciation versus commodity correlated assets can be attributed to the extension of the commodities rout. However, the British asset is holding a comparatively weak position versus many of its peers, including the US Dollar, as the dreadful public finances data continues to weigh on demand for Sterling. Many economists are concerned that Chancellor George Osborne will be forced to introduce harsher austerity measures in order to meet targets. This will likely see the Labour Party gather momentum as the new leader continues to gather support for his socialist views on economics.
Looking ahead, New Zealand’s economic docket will be particularly sparse this week. Only Wednesday’s Trade Balance data will have the potential to provoke significant NZD volatility. With that in mind, the South Pacific asset will see changes in response to commodity price shifts and Chinese stock values, in addition to US Dollar movement and any changes in the prospects of a December Federal Reserve cash rate increase.
The UK’s economic data docket this coming week will also be sparse. Only Friday’s third-quarter Gross Domestic Product data has enough weighting to stimulate marked Sterling movement. Any news from BoE officials with regards to policy outlook will impact Sterling trade.
Heads Up
Summary of major upcoming data releases that we think may move the market.