The last week has been particularly volatile for the Pound Sterling to New Zealand Dollar exchange rate as the pairing continued climbing away from the multi-month lows seen at the end of 2015. Demand for the Pound slumped sharply on Tuesday, however, as the latest UK Industrial Production figures were found to have weakened further than pundits had expected. Manufacturing in particular showed marked contraction on both the month and the year in November, suggesting a continued decline in production as global downside pressures mount. This disappointing raft of data was not seen to bode well for the economic growth prospects of the UK and also puts little pressure on the Bank of England (BoE) to consider a more imminent interest rate hike.
Although the National Institute of Economic and Social Research (NIESR) maintained a more optimistic outlook, setting their Gross Domestic Product Estimate for December at 0.6%, this failed to particularly shore up the softened Pound.
The ‘Kiwi’, meanwhile, strengthened somewhat on Wednesday after December’s Chinese trade data was found to have been markedly more positive than anticipated. Exports surprisingly jumped from -3.7% to 2.3% on the year, while the domestic trade surplus defied forecasts by widening from 54.1 to 60.0 billion US Dollars. Despite an initially positive market reaction, however, traders soon took a more sceptical view of these figures amidst suggestions that some export numbers had been exaggerated. With China’s economy still evidently dogged by slowdown pressures, the commodity-correlated New Zealand Dollar soon returned to a downtrend against rivals.
In spite of widely-held expectations that the first BoE policy meeting of 2016 would see no particular change in sentiment, the GBP/NZD exchange rate advanced ahead of the central bank’s latest interest rate announcement. However, the Monetary Policy Committee (MPC) once again voted 8-1 in favour of leaving rates unchanged, with Ian McCafferty still the sole dissenting hawk. Policymakers in general took a dovish tone with regards to the UK’s continued economic growth amidst current global conditions, showing no inclination to consider a hike until inflation shows signs of picking up.
Members of the Federal Open Market Committee (FOMC) have equally been making more dovish comments recently, appearing to rule out the likelihood of the Fed achieving its initial forecast of four interest rate rises over the course of 2016. As this prospect softened the appeal of the strengthening US Dollar the ‘Kiwi’ was naturally bolstered, particularly as a slower pace of Fed hikes may see the Reserve Bank of New Zealand (RBNZ) holding off from slashing rates in response.
The GBP/NZD exchange rate trended higher once again on Monday following the revelation that milk production in New Zealand had dropped on the year in December. Although a lower level of production would tend to support higher dairy prices, this does not seem to bode well for the longer-term outlook of the domestic economy. As such the ‘Kiwi’ has softened ahead of the latest GlobalDairyTrade auction, though any uptick in milk solid prices is likely to shore up the South Pacific currency.
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