Market expectations regarding the timing of the Federal Open Market Committee’s (FOMC) next interest rate hike have remained a major source of New Zealand Dollar volatility.
Although various policymakers had been offering up hawkish hints, a speech from Fed Chair Janet Yellen saw the odds of an imminent hike rapidly drop.
Yellen emphasised the data-dependence of any monetary policy decision, taking a dovish tone that reaffirmed the belief that interest rates are unlikely to move for the time being. As a result the ‘Kiwi’ was bolstered sharply across the board, with demand for higher-risk assets shored up by the more cautious commentary.
The Pound, on the other hand, suffered a marked decline after it was revealed that Indian conglomerate Tata Steel would be looking to offload its British assets. With the future of the UK’s steel industry thrown into doubt by this announcement, confidence in the domestic economy rapidly declined. As Brexit debate is likely to weigh on economic growth in coming months, the potential collapse of part of the country’s manufacturing base saw the GBP/NZD exchange rate slide.
‘Kiwi’ Shored up by Stronger Chinese Manufacturing
While the UK’s fourth quarter GDP was unexpectedly revised upwards on Thursday, this failed to halt Pound Sterling’s downtrend. Despite the finalised figure being confirmed at 2.1% rather than 1.9%, concerns have continued to rise over the negative impact that referendum uncertainty could have on the economy going forward.
Risk appetite was boosted further on Friday as the Chinese Manufacturing PMI posted a surprise return to expansion. Clocking in at 50.2 rather than the 49.3 markets had anticipated, this sign of modest recovery in the world’s second largest economy boosted market confidence and raised hopes of a more sustained recovery in commodity prices, prompting traders to continue flocking to the ‘Kiwi’.
Although the latest headline US Non-Farm Payrolls figure showed a larger-than-expected increase in jobs, this failed to particularly dent the bullish run of the New Zealand Dollar.
With the Pound weighed down by a disappointing UK Manufacturing PMI this consequently saw the GBP/NZD exchange rate fall to an eleven-month low of 2.0579.
Panama Papers’ Accusations Weigh on NZD
The New Zealand Dollar’s bullish run was brought to an end on Monday, however, as the Panama Papers leak prompted a fresh wave of safe-haven demand. As the leak also raised allegations that New Zealand had been functioning as a soft tax haven market confidence faltered, pushing the ‘Kiwi’ lower against rivals.
Demand for the Pound recovered on the back of a better-than-expected UK Construction PMI, which defied forecasts of a decline to hold steady on the month in March. While the domestic construction sector is still at a three-year low for growth this was nevertheless enough to shore up the GBP/NZD exchange rate. An improved UK Services PMI also added to the upwards momentum of the Pound on Wednesday, in spite of growing concerns that domestic economic growth has slowed since 2015.
March saw a sharp slump in the ANZ Commodity Price Index, which fell from 0.5% to -1.3% as supply largely continued to outpace demand. This does not appear to bode well for the outlook of the New Zealand dairy industry in particular, with speculation rising that the Reserve Bank of New Zealand (RBNZ) could be prompted to cut interest rates again sooner rather than later.
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