The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate maintained a bullish attitude as the week drew to a close.
The GBP/NZD pairing soared earlier in the week in response to the Reserve Bank of New Zealand’s (RBNZ) rate decision.
While the fact that the central bank increased the Overnight Cash Rate (OCR) by another 25 basis points would ordinarily have pushed the New Zealand Dollar higher, the statement accompanying the decision saw the currency plummet.
As well as indicating that the RBNZ would be refraining from introducing any additional interest rate increases for the rest of the year, Governor Graeme Wheeler issued a damning condemnation of the strength of the domestic currency.
He asserted that for the currency to be performing at such levels when local inflation is slowing and diary prices are falling is both ‘unjustified’ and ‘unsustainable.’
Wheeler stated that the New Zealand Dollar could potentially suffer from a ‘significant fall’ in the near future.
As if by magic, the South Pacific currency did fall, plummeting to multi-week and multi-month lows against its rivals.
The weakness in the New Zealand Dollar was such that it continued trending lower against the Pound even as the appeal of the British asset was reduced by lacklustre Bank of England (BoE) minutes and less-than-impressive UK retail sales figures.
As the week drew to a close New Zealand released its NBNZ Business Confidence gauge for July. The measure had fallen from 42.8 in June to 39.7.
The slide in sentiment saw economist Cameron Bagrie note; ‘Wilting sentiment (from high levels) but mixed nuances in the detail is consistent with an economy that is transitioning into a more sustainable economic expansion (that means growth a tad slower than we’ve seen of late). Overall, the suggestion from our survey is that firms are simply getting on with it.’
New Zealand’s ANZ Activity Outlook measure also recorded a fall from 45.8 to 45.1.
On Friday figures released by the Office for National Statistics confirmed that the UK economy is now back to running at pre-crisis levels.
However, given the headwinds which remain and the disappointing fundamentals published earlier in the week, the Pound failed to see much benefit from this report.
That being said, the GBP/NZD pairing was trending 0.3% higher before the close of the European session.
GBP/NZD Forecast for Week Ahead
Over the next week economic reports from New Zealand are severely lacking so movement in the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate will largely be driven by UK news and global economic developments.
If the UK’s reports, which include Mortgage Approvals and Consumer Confidence figures, surprise to the upside they could support the Pound.
However, the New Zealand Dollar has proven itself to be incredibly resilient in recent months and the currency could well recover the losses sustained this week. A positive Manufacturing PMI print from China may boost the South Pacific asset, and any disappointing US results (which add to the case in favour of the Fed leaving interest rates on hold) would also bolster commodity-driven currencies like the ‘Kiwi’.
Consequently, we forecast that the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate could pare this week’s advance unless UK data prints positively.
UPDATED 14:40 GMT 29 July, 2014
GBP/NZD Trending Higher
Although the Pound came under pressure against the majority of its most traded currency counterparts on Tuesday as the Bank of England’s Deputy Governor labelled it ‘overvalued’, the British asset was able to maintain a slightly stronger position against the New Zealand Dollar.
That being said, the GBP/NZD pairing did slip from a high of 1.9963 to trade in the region of 1.9883 as the European session continued.
The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate is currently trending in the region of 1.9984. Further movement in the pairing may be caused by New Zealand’s building permits report and the UK’s Lloyds Business Barometer. Investors will also be taking an interest in China’s Westpac MNI Consumer Sentiment Index.
UPDATED 09:50 GMT 30 July, 2014
Falling Dairy Prices Weigh on New Zealand Dollar
The Pound Sterling to New Zealand Dollar exchange rate was able to record an impressive advance as the week continued.
The commodity-driven ‘Kiwi’ tumbled against almost all of its most traded currency counterparts after the world’s largest exporter of dairy produce, Fonterra Cooperative Group, slashed its forecasts for future dairy prices.
After the news was released the New Zealand Dollar slid against almost all of its main currency counterparts, prompting currency strategist Raiko Shareef to note; ‘The New Zealand Dollar was the major underperformer and that can broadly be attributed to the Fonterra news yesterday. That continues the pressure that has been building on the Kiwi for essentially all of July’.
Further New Zealand Dollar losses occurred after UBS industry experts intimated that the Reserve Bank of New Zealand might have to intervene in the currency market to restrain the local currency.
Little movement took place after New Zealand’s Building Permits data showed a 3.5% increase in June.
The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate is currently trending in the region of 1.9903.
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