Foreign Currency Market Update – GBP / NZD Update
Global risk aversion was on the rise last week, softening the New Zealand Dollar as the heightened odds of an imminent interest rate rise from the Federal Open Market Committee (FOMC) weighed over the South Pacific currency.
The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate has fluctuated between highs of 2.3296 and lows of 2.2848 over the past seven days.
Wednesday’s New Zealand Balance of Trade was not quite as optimistic as pundits had been hoping as the nation’s trade deficit failed to narrow as much as forecast. Thus, in spite of an improvement in economic conditions, the ‘Kiwi’ was pushed lower against rivals. The same day also saw the release of an unexpectedly bullish US Durable Goods Orders figure, which encouraged speculation and drove up the chances of a 2015 interest rate rise from the Fed.
The GBP/NZD exchange rate was bolstered further as the UK’s Chancellor of the Exchequer George Osborne revealed a seemingly more optimistic than expected budget in the Autumn Statement. With the apparent scrapping of controversial tax credits changes and markedly reduced cuts in various areas, demand for the Pound rapidly increased. However, over the following days some degree of scepticism began to emerge towards the viability of Osborne’s economic plans as doubts were raised over the accuracy of the revised tax receipts on which the new budget is largely hinged.
Friday saw fresh turmoil emanating from China, as the Shanghai Composite Index closed down 5.5% on the back of announced investigations into a number of the country’s major brokerage firms. Although commodity-correlated currencies and the Asian-Pacific basket were initially dragged down by this news the GBP/NZD exchange rate was not able to hold onto its renewed gains for long, following a disappointing third quarter GDP report.
Over the weekend the appeal of the New Zealand Dollar was enhanced by a particularly strong improvement on the month in domestic Building Permits. Approvals climbed from -5.8% to 5.1%, suggesting that the New Zealand housing market remains robust in spite of wider slowdown concerns. This stronger showing was consolidated by a better-than-forecast rise on the ANZ Business Confidence Index, which rose from 10.5 to 14.6 in November as the local outlook appeared to strengthen.
Expectations are that tonight’s GlobalDairyTrade auction could produce a fourth consecutive session of decline for the value of milk solids, a bad signal for the weakened New Zealand dairy sector. Should dairy prices continue to slide the odds of a fresh interest rate cut from the Reserve Bank of New Zealand (RBNZ) are likely to increase, driving down demand for the ‘Kiwi’. Nevertheless, sentiment remains largely positive towards the New Zealand Dollar today as investors are currently undeterred by the prospect of fresh commodity weakness.
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