by Jon Beddell
Foreign Currency Market Update – GBP / NZD Update
Sterling has had a bad week. After making a new high above 2.20 in August the Pound has been dented in recent days as investors start to price in the distinct possibility that the revised second quarter growth figure of 1.2% may mark the high for this cycle, and the third quarter will show a slowing in the recovery. The prospect of a double dip does nothing for the pound, especially when combined with a moderating inflation outlook that will likely allow the Bank of England’s interest rate setting MPC to remain on the sidelines for the foreseeable future. In New Zealand interest rates stand at 3.25% compared to a paltry 0.5% in the UK. Having said that, interest expectations out there are now flattening as inflation starts to moderate.
The real driver of the Kiwi will be investor attitudes to risk. Stock markets are recovering strongly from recent lows, which helps the higher yielding currencies as investors pull money out of the US dollar and place riskier bets in more volatile currencies. Even during the recent stock market weakness the Kiwi did not suffer much. Although the big trade was buying the US dollar, investors were selling other currencies in equal measure rather than the dumping of high yielders that we have seen during other notable weak patches. The stock sell off never really developed into panic, which allowed the high yielding basket to treat water. If the stock recovery continues we would expect further strength from these currencies.
The technical outlook is positive for Sterling while the market trades above 2.10. Despite this week’s five cent sell drop we still have a tentative up trend in place, and this would only be broken with a move below 2.10. Buyers of the Kiwi may wish to place a stop order below 2.10 in case things get nasty. Sellers of the Kiwi should consider taking some risk off the table at current levels, especially as we are now touching trend support.
Related posts:
- New Zealand Dollar Foreign Exchange Forecast – Sterling Creeping Higher…
- New Zealand Dollar Exchange Rate Forecast
- Foreign Exchange Market News – New Zealand Dollar
- New Zealand Dollar – The Reserve Bank of Australia raised interest rates again last week
- New Zealand Dollar – The Kiwi dollar has been on the back foot this week
