The Pound to New Zealand Dollar exchange rate (GBP/NZD) declined by -0.3 cents to 1.9310 last night in response to a stronger-than-expected domestic Services PMI result of 58.2 in New Zealand.
New Zealand’s Service Sector PMI, which measures output from almost two-thirds of the economy, printed at a 6-year high of 58.2 in October. Up from 56.4 in the previous month, the robust score was influenced by an acceleration of New Orders and Sales.
Paired with last week’s Manufacturing PMI result, the New Zealand Composite of private sector output currently stands at 56.0, suggesting that GDP growth will come in above-trend for the fourth quarter. This boosted the ‘Kiwi’ Dollar as investors scaled forward their estimates of a rate increase from the RBNZ.
Last Friday the New Zealand Dollar rallied by around half a cent against the Pound as GBP/NZD slipped from a 14-day low. Demand for the ‘Kiwi’ was bolstered by comments from soon-to-be Federal Reserve President Janet Yellen, who sounded a dovish tone with regards to monetary policy at her Confirmation Hearing with the US Senate.
Yellen’s attitude towards the economy suggests that she will be in no rush to reduce the $85 billion a month bond-buying prematurely; the incoming President said that it is “imperative” to boost the labour market before taking away the ultra-loose QE3 stimulus measures.
The ‘Kiwi’ also benefitted from comments from the Reserve Bank of New Zealand Governor Graeme Wheeler, who said that interest rates will probably begin to be raised next year to combat the island nation’s recent rise in Consumer Prices.
With the earthquake-hit region of Christchurch subject to extensive rebuilding work, and house prices rising rapidly, the New Zealand Consumer Price Index doubled from 0.7% to 1.4% during the third quarter. The RBNZ has repeatedly expressed concerns towards the rate of inflation and the Central Bank has pencilled-in a rate hike in the first half of next year, with a mind to reaching a peak of 4.50% at some point in 2015. The benchmark interest rate currently stands at 2.50%.
The New Zealand Dollar benefits massively from its status as a high-yielding currency and demand for the high-beta ‘Kiwi’ is only likely to proliferate when the RBNZ begins its hiking cycle.
There is a very sparse economic calendar today, but later in the week Minutes from the Bank of England and the Federal Reserve could prove to be the main drivers behind market movement. The BoE’s latest report is likely to show a move towards a more positive outlook, and any especially hawkish comments could send Sterling pairs soaring.
The Fed Minutes report is likely to show contrasting views among policymakers and support for the US Dollar could hang in the balance: if a strong majority appear in favour of the taper then USD could rally in anticipation of a reduction of stimulus in December. However, if Fed officials seem reluctant, as is the case with incoming Governor Yellen, to prematurely remove support from financial markets then the ‘Greenback’ could fall victim to a period of selling pressure.
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