The Pound New Zealand Dollar exchange rate has trended downwards over the past seven days as the Kiwi registered healthy gains following a go-ahead assessment of the domestic NZ economy from the Reserve Bank of New Zealand (RBNZ). The RBNZ Governor Graeme Wheeler’s observation that an interest rate hike ‘will likely be required next year’ caused institutional investors to hoover up the New Zealand tender, sending GBP NZD into the 1.93000s last Thursday.
The pair has remained at close to this level during the intervening period thanks to a generalised ‘risk on’ trading environment which sent the broad-ranging S&P500 equities index in the US to a new record high on Monday. Buoyant levels of appetite for risk amongst institutional investors have favoured the higher-yielding export-driven currencies, but with the US Federal Reserve announcing its latest monetary policy decision this evening, this situation is by no means guaranteed to persist.
The US central bank has been pumping $85bn per calendar month into the global financial system via its controversial Quantitative Easing programme for over a year. The policy has favoured the New Zealand economy, which remains heavily dependent on healthy levels of demand from its export markets in order to perform well. Analysts are expecting the Fed to announce later today that it will begin tapering the scheme, with the general consensus amongst commentators being that a $15bn cut is on the cards. Anything greater than this and it is likely that the NZD will give up ground against Sterling. Conversely, if the Fed surprises the market and decides to maintain QE at $85bn per month, then look for GBP NZD to head lower again, with the next key interim floor for the pair coming at 1.8861 – a level last visited on 9th July.
Meanwhile, investors will learn more about the state of New Zealand’s economy later this evening when the latest NZ Gross Domestic Product data is published. The figures are expected to reveal that the annualised level of economic activity in the nation’s economy eased from 2.4% in Q1 to 2.3% during the three months to the end of June. If the figures show that the weakening of the New Zealand Dollar during Q2 has triggered higher than anticipated levels of domestic economic growth, then any selling pressure on GBP NZD which the Fed’s policy announcement earlier this evening triggers will be accentuated.
Summary of major upcoming data releases that we think may move the market.
|Date||Time||Issuing country/region||Data Item||Market Expectation||Market Sensitivity|
|18th September||23:45||New Zealand||Gross Domestic Product (Annualised) (Q2)||2.3%|
|19th September||09:30||UK||Retail Sales (Annualised) (August)||3.2%|
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