The Pound to New Zealand Dollar exchange rate (GBP/NZD) reached an 18-month high of 2.0434 on Friday but the pair is currently trading slightly cents lower due to the latest PMI data out of China.
Although HSBC’s Chinese Manufacturing Purchasing Managers Index for January came in at 49.5, signaling that output contracted last month, an official report compiled by the Chinese government showed that factory orders continued to expand, albeit at a 6-month low pace of 50.5.
GBP/NZD declined by around a cent when markets reopened in the Asia/Pacific region late last night, as investors reacted to the sturdy official PMI result.
Chinese data has a massive bearing on the New Zealand Dollar because the performance of the Chinese economy is strongly linked to the performance of the New Zealand economy, especially its export sector. China has the second largest economy in the world and is the largest buyer of commodities; when Chinese growth is booming the ‘Kiwi’ Dollar benefits from the ensuing influx of cash from Chinese buyers.
The ‘Kiwi’ Dollar received another boost earlier this morning when the Chinese Non-Manufacturing PMI print, which measures tertiary output across the Chinese Services Industry, came in at 53.4. Although the result marked a slowdown from 54.6, traders of the New Zealand Dollar were cheered by the print as it still showed positive growth.
GBP/NZD 18-Month High
Prior to the Chinese PMI results, Sterling struck an 18-month high against the New Zealand Dollar as risk aversion trends gripped financial markets.
The commodity-sensitive ‘Kiwi’ had remained resilient to the huge selloff in emerging markets because traders were curious as to how the Reserve Bank of New Zealand would act in January. When the RBNZ announced that it would not be hiking rates the New Zealand Dollar suffered as weak risk sentiment caught up with the ‘Kiwi’.
The high-risk NZD was also hurt by the Federal Reserve’s decision to taper asset purchases again in January, which dampened investors’ demand for volatile asset classes.
UK Manufacturing
Later on this morning Markit Economics will release its Manufacturing PMI reading for the United Kingdom during January. It is predicted that output will print at 57.0 to show a slight deceleration from December’s score of 57.3. The mild drop-off in the sector is unlikely to have a significant impact on the Pound. However, Sterling does have the potential to rally if the PMI comes in above-target.
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