Yesterday the Pound came under pressure as UK industrial production data fell short of forecasts and the NIESR GDP estimate for January was negatively revised to growth of 0.7 per cent.
The GBP/NZD pairing largely retained declines overnight and was trading in a fairly narrow range ahead of the Reserve Bank of New Zealand’s upcoming interest rate decision.
While the appeal of the ‘Kiwi’ has dimmed a little in the face of Chinese-slowdown fears, the prospect of the RBNZ being the first developed nation central bank to raise interest rates is keeping the currency trading higher against peers like the Pound.
The majority of economists are envisaging a 25 basis point rate increase.
According to one industry expert; ‘What we’re not sure about is what comes in the monetary policy statement afterwards, and that will be crucial to the market reaction. Expectations are higher (for a rate hike) and the downside risk would be the biggest risk with the ‘Kiwi’.’
While the New Zealand Dollar is currently performing fairly well against the Pound, and while a rate increase would lend the asset underlying support, the Reserve Bank may attempt to talk down the local currency by stressing the adverse impact its strength will have on New Zealand’s economic stability.
Past attempts to drive down the ‘Kiwi’ with commentary have been fairly unsuccessful, resulting in only fleeting dips against its Australian and US counterparts, so the central bank may need to adopt a more aggressive rhetoric in order to achieve the desired effect.
Some exporters are also betting that the New Zealand Dollar will decline in the foreseeable future.
Nearly 70 per cent of surveyed New Zealand exporters expect the ‘Kiwi’ and ‘Aussie’ to reach parity in the months ahead and the NZD/USD pairing to ease to 78.2 US cents.
In the view of ASB economist Nick Tuffley; ‘In the short term, though, we’re likely to find the New Zealand Dollar pretty firm, particularly as the Reserve Bank starts lifting interest rates.’
A lack of UK news may limit movement in the GBP/NZD pairing as the European session continues.
The RBNZ rate decision could inspire considerable fluctuations in the Pound to New Zealand Dollar exchange rate tomorrow, but investors will also be taking an interest in China’s industrial production and retail sales reports.
As New Zealand relies heavily on China for trade, additional evidence of an economic slowdown in the world’s second largest economy could reduce the ‘Kiwi’s appeal.
Economists have forecast a 9.5 per cent annual increase in China’s industrial production in February following 9.7 per cent year-on-year growth in January.
A 13.5 per cent increase in China’s retail sales is also expected.
New Zealand Dollar (NZD) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
New Zealand Dollar,
,US Dollar,0.8444,
New Zealand Dollar,,Euro,0.6135,
New Zealand Dollar,,Australian Dollar,0.9343 ,
New Zealand Dollar,,Pound Sterling,0.5044,
US Dollar,,New Zealand Dollar,1.1913 ,
Euro,,New Zealand Dollar,1.6275 ,
Australian Dollar,,New Zealand Dollar,1.0690 ,
Pound Sterling,,New Zealand Dollar, 1.9801,
[/table]
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