With the Reserve Bank of New Zealand (RBNZ) interest rate decision due this week the New Zealand Dollar is likely to see significant volatility. The Federal Open Market Committee (FOMC) interest rate decision will also be impactful.
New Zealand Dollar Cools on Damp Market Sentiment
Over the past seven days the New Zealand Dollar has cooled versus a number of its major peers thanks to risk-off trading. The combination of weak commodity prices and global stock volatility had the greatest impact on market sentiment.
However, as the week progressed the ‘Kiwi’ (NZD) recovered losses thanks to rising dairy prices and signs of improvement in China’s economy. Further fuelling New Zealand Dollar appreciation was traders taking advantage of the currency’s comparatively low trade weighting.
GBP/NZD Exchange Rate Rallied on Reduced ‘Brexit’ Fears
Although the New Zealand Dollar strengthened as the week progressed, the GBP/NZD exchange rate advanced considerably. This was the result of heightened demand for Sterling amid reduced ‘Brexit’ concerns.
With opinion polls showing that those voting to remain in the EU on June 23rd will outpace those voting to leave, many traders considered the initial Sterling depreciation on ‘Brexit’ uncertainty overdone.
‘Kiwi’ (NZD) Edges Higher amid Predictions of FOMC Rate Hike Delays
On Tuesday the New Zealand Dollar edged fractionally higher versus a number of its major peers. The ‘Kiwi’ appreciation is the result of reduced Federal Reserve rate hike bets. Wednesday will see the FOMC interest rate decision and many analysts predict that the accompanying press conference will be dovish in tone.
Wednesday will also see the RBNZ interest rate decision. Whilst most analysts do not expect any changes to policy at this time, there is still potential for a small cut to the overnight cash rate if policymakers are concerned about the negative impact of NZD strength. Any hints that the central bank is considering cutting interest rates at some point this year would weigh on the ‘Kiwi’.
GBP/NZD to Hold Gains Irrespective of FOMC Rate Decision?
With the British Pound enjoying a significant relief rally now that most traders agree that Sterling’s initial downtrend following the announcement of the date of the EU referendum was overdone, the Pound may continue to trending higher versus its Oceanic counterpart.
Even if Federal Reserve Chairwoman Janet Yellen delivers a particularly dovish speech and the RBNZ avoids cutting rates, Sterling’s current momentum points towards continued GBP/NZD exchange rate appreciation.
Over the past seven days, the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate was trending within the range of 2.0414 to 2.1174.
Heads Up
Summary of major upcoming data releases that we think may move the market.