Confidence in the New Zealand Dollar picked up on the back of better-than-expected New Zealand trade data last week.
Investors were encouraged to find that the trade surplus had widened further than forecast, pointing towards a healthier domestic economy.
Although the ‘Kiwi’ struggled to hold onto its gains for long, with markets bracing for the Federal Reserve’s July policy meeting, the GBP NZD exchange rate failed to find any particular traction.
As the Fed ultimately surprised markets with a greater note of caution on the subject of inflation the New Zealand Dollar rallied strongly on Wednesday evening.
The relative weakness of the US Dollar helped to shore up the commodity-correlated currency, particularly as the odds of the Fed achieving another interest rate hike in 2017 were seen to diminish sharply.
Even though the central bank still appears to be on course to begin normalising its balance sheet imminently the more dovish tone of the meeting statement gave investors plenty of reason to favour higher-yielding assets.
New Zealand Dollar Dented by Risk Aversion
Risk appetite weakened significantly on Monday morning, with markets spooked by developments surrounding Venezuela. As the US threatened sanctions against the country on the back of its controversial constitutional assembly election investors were encouraged to pile back into safe-haven assets such as the US Dollar.
This weighed heavily on the appeal of the risk-sensitive New Zealand Dollar, with rising geopolitical tensions likely to hamper demand for the ‘Kiwi’ in the near term.
The GBP NZD exchange rate also benefitted from a decline in the ANZ activity outlook for July, with confidence in the New Zealand economy showing fresh signs of deterioration.
As the chances of the Reserve Bank of New Zealand (RBNZ) adopting a policy tightening bias in the coming months appear distinctly limited the ‘Kiwi’ has been left vulnerable to downside pressure.
As UK net consumer credit showed a smaller uptick than forecast the Pound was able to extend its gains against the New Zealand Dollar.
However, this data did not bode entirely well for the UK economy as the total amount of unsecured consumer credit rose above 200 billion for the first time since 2008.
Given that the Bank of England (BoE) has already expressed concerns over the increasing resilience on credit amongst consumers this could encourage policymakers to take a more cautious view of the economic outlook.
Dovish BoE Could Prompt GBP NZD Slump
Sharp movement is likely in store for the GBP NZD exchange rate once the BoE announces its interest rate decision on Thursday.
Although no change in policy is anticipated at this juncture there is considerable interest in the exact split of opinion within the Monetary Policy Committee (MPC).
If more policymakers look to be taking a more hawkish view this could set the Pound on a bullish run. On the other hand, if the majority of the MPC continues to indicate a willingness to sit tight for the foreseeable future the mood towards Sterling is likely to sour once again.
With fresh New Zealand data somewhat limited in the coming week the ‘Kiwi’ may come under renewed pressure, meanwhile.
If market risk appetite recovers this could offer some fresh support to the antipodean currency, particularly if US personal consumption and payrolls data fails to impress markets. On the other hand, as long as global tensions continue to mount the New Zealand Dollar is likely to fall further out of favour with jittery investors.