Since the last Global Dairy Trade Auction revealed an increase in dairy prices the New Zealand Dollar has outperformed most of its currency rivals.
Risk-On Trade Supported NZD Gains
Over the past week the New Zealand Dollar has advanced versus a number of its major peers thanks to improved market sentiment and heightened demand for high-yielding assets. One of the major factors promoting risk-on trade was a steep rise in the price of metals and other commodities. This, in turn, has seen global stock values rise.
Additional ‘Kiwi’ (NZD) gains can be linked to reduced bets regarding a Federal Reserve overnight cash rate hike. Whilst Fed policymakers are still expected to increase the benchmark interest rate twice in 2016, this is only half as much as the Fed originally projected. With external risks showing little sign of a swift change, the Fed’s gradual approach to tighter policy will be positive for New Zealand.
Sterling Outlook Mixed after Rising Inflation Offset ‘Brexit’ Uncertainty
On Wednesday the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate declined thanks to improved risk appetite following positive Chinese trade data. Additionally, the UK asset continues to struggle against mounting political uncertainty as the EU referendum draws ever closer. The most recent opinion poll showed that the ‘leave’ campaign has a slight advantage over the ‘stay’ vote.
Although the UK asset has been adversely impacted by unknowns surrounding the EU referendum, the steel crisis and the ‘Panama Papers’ tax scandal, the Pound had previously gained as domestic data showed consumer prices advanced by 0.5% from March 2015 to March 2016. Whilst this is still critically below the Bank of England’s (BoE) target, any sign of inflationary growth is positive for the UK.
GBP/NZD Forecast: New Zealand Inflation Data to Provoke Volatility
There are a number of influential data publications to be aware of over the coming week. Thursday will be significant given that the Bank of England interest rate decision is due. This is not expected to be hugely impactful, however, given that policymakers are not expected to make any changes at this time.
New Zealand’s inflation data, due for publication late on Sunday evening, will be far more likely to cause GBP/NZD exchange rate movement. Tuesday’s Dairy Auction will also be significant.
In terms of British economic data, next week’s Average Weekly Earnings, Unemployment Rate, Retail Sales and Public Finances data will be likely to impact the Pound.
Heads Up
Summary of major upcoming data releases that we think may move the market.