by Jon Beddell
Foreign Currency Market Update – GBP / NZD Update
The pound bounced by seven cents from July 13th to July 19th, but gave back those gains last week, making a new four week low on Thursday even as UK retail sales data for June beat expectations. Things looked a little better on Friday. Second quarter GDP figures showed the UK economy grew at 1.1% in the second quarter, an improvement on the 0.3% first quarter figure and much better than analysts had expected. The pound rallied against all other major currencies, but gains against the high yielders were limited, and we are already flirting with new lows against the Kiwi this morning.
The Kiwi dollar has also been benefiting from US dollar weakness as investors continue to take on more risk and buy high yielding assets following the European bank stress test results on Friday. Only seven regional banks failed to make the cut, helping to calm investor nerves and add weight to the fragile recovery.
The Reserve Bank of New Zealand meet on Thursday, and are widely expected to raise interest rates to 3%, making that the second rate hike of the cycle following the 25 basis point move on June 9th. That prospect has been helping the Kiwi, and may continue to do so as investors price in further rate hikes over the coming months. By contrast, the Reserve Bank of Australia has already put in a series of rate hikes starting late in 2009, and is now expected to raise rates only once more before the end of the year. We may see the Kiwi start to outperform it’s Australian counterpart.
The technical outlook is not great. After making a marginal new high in early July we are right back at square one. A break below the June low at 2.0750 would remove the last hope of a trend reversal and give us every reason to foresee a return to the 2.0350 lows and beyond.
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