The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate strengthened to a 1-week high on Wednesday as a sharp fall in commodity prices caused investors to ditch the riskier currency in favour of safer havens.
Tumbling oil and copper prices caused investors to move away from perceived riskier assets as the sharp fall in prices and low inflation in a number of major economies increased concerns that the global economy is slowing. Oil prices have fallen to their lowest levels in six years as OPEC member the United Arab Emirates reaffirmed its commitment to not tapering production in order to help prices.
‘Global sentiment which was already fragile was given another knock last night by a further drop in oil prices. The UK CPI which raised doubts about Bank of England interest rate rises this year, and increasingly confident predictions that the ECB will actually do something next week. The markets are focused much more on the risk side of the risk-reward balance. Whilst New Zealand offers a great reward, it does come with some risks and the markets are looking to avoid risk at the moment,’ said Peter Cavanaugh from Bancorp Treasury Services.
The cause for the steep drop in copper prices was the publication of a report by the World Bank, which showed that the group had cut its global growth forecasts for this year and next year.
The institution is forecasting that the global economy will expand by just 3% over the course of 2015 and by 3.3% in 2016. In June last year the World Bank had forecast that, the global economy would expand by 3.4% in 2015 and 3.5% in 2016. The report also said that the world’s economy is becoming too reliant on the US.
‘Copper prices tanked about 9% and had their biggest single daily fall in about five years – it was pretty dramatic. As a result the Australian Dollar got whacked heavily and the ‘Kiwi’ followed suit,’ said Raiko Shareef, currency strategist from Bank of New Zealand.
