The Pound to New Zealand Dollar exchange rate (GBP/NZD) struck a fresh 9-month high of 2.0032 yesterday morning as traders chose to dump the ‘Kiwi’ in response to the Bank of Japan’s latest monetary policy statement.
Sterling was up by around 3.0 cents as it breached the psychologically significant 2.0000 level for the first time since last September. Apart from wider market themes such as plummeting commodities, cooling economic output in China and the recent upswing in UK data, the main driver behind GBP/NZD’s impressive performance yesterday morning was the Bank of Japan’s decision not to embark on any further stimulus measures at its latest policy meeting.
Pound to New Zealand Dollar exchange rate (GBP/NZD) struck a fresh 9-month high of 2.0032
The Japanese Central Bank said that economic performance was already improving in response to the expansive asset purchasing programme and argued that no further quantitative easing measures were necessary:
“Japan’s economy is expected to return to a moderate recovery path, mainly against the background that domestic demand increases. It is resilient due to the effects of monetary easing as well as various other economic measures.”
As one of the largest drivers of growth in the Asia-Pacific region the Japanese economy is very important to the New Zealand financial system. Although Japan has finally started to emerge from its decade of stagnation, the improvements did not translate into greater demand for the ‘Kiwi’. Moreover, the fact that there is no more stimulus on the cards reduced demand for the New Zealand Dollar because bond-buying is seen to bring down the yield (profitability) on Japanese sovereign bonds and therefore make the high-yielding NZD more attractive to yield-hungry investors.
It is this phenomenon that helped GBP/NZD reach a fresh 9-month high.
However, the Pound was unable to sustain itself above the psychological resistance level and GBP/NZD fell as quickly as it rose, shooting down to around 1.9800.
In the UK, data showed that monthly Industrial Production expanded at a 3-moth low rate of 0.1% during April, whilst Manufacturing Production declined by a slender -0.2%. The latest figures brought the overall year-on-year prints to -0.6% and -0.5%, respectively. The National Institute of Economic and Social Research (NIESR) predicted that the UK economy slowed from 1.0% to 0.6% growth in the three months to May, compared to the three months to April.
Later on today the British Unemployment Rate is expected to have held steady at 7.8% during April, however, Average Weekly Earnings are forecast to have dropped to a worryingly low 0.2%, which could have a damaging effect on consumer spending as inflation continues to overshoot the Bank of England’s 2.0% target.
During the evening the Reserve Bank of New Zealand will announce its benchmark interest rate for June; the wide majority of market-players expect the RBNZ to maintain its current record-low rate of 2.50%, which should boost the Antipodean currency against the Pound. However, any inclination that further rate cuts could take place in the future would have the potential to send GBP/NZD back up towards 2.0000.
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