Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Softens as New Zealsnd's Currency Supported by Dovish FED

July 30, 2014 - Written by David Woodsmith

STORY LINK Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Softens as New Zealsnd's Currency Supported by Dovish FED

The British Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate softened and slipped against most of its major peers on Wednesday as it was revealed that the currency has lost its place as the most popular bullish bet among the G-10 economies.

According to the Washington based Commodity Futures Trading Commission, speculators and hedge funds have their cut their bets for further Sterling advances by 28,915 contracts in the three weeks leading up to July 25. The decline marks the biggest fall recorded so far this year.

“There have been pullbacks in the past, but this time it may be different. At this level, sterling will need constant new inputs to justify its price. We may have seen the top in the Pound exchange rate,” said a foreign exchange strategist at Saxo Bank.

Also weighing upon the UK currency was yesterday’s comments made by the International Monetary Fund which said that the Pound is overvalued by around 10% to 15%.

Earlier in the session the New Zealand Dollar meanwhile fell below the 85 cents level against the US Dollar for the first time in seven weeks. Fonterra Cooperative Group reduced its forecast payout to dairy farmers as dairy prices continued to weaken.

"It was a night of broader based US dollar strength," said Bank of New Zealand currency strategist Raiko Shareef. "The New Zealand dollar was the major underperformer and that can broadly be attributed to the Fonterra news yesterday. That continues the pressure that has been building on kiwi for essentially all of July. We have had a series of quite sharp setbacks for the kiwi, all fundamentally bringing it back in line with where it really should be, the pressure is still lower.”

As the session progressed however the ‘Kiwi’ managed to rally and push higher against the US Dollar and other major peers. The rise came following the release of positive building consents data. The report released by Statistics New Zealand showed that building consents increased at the fastest pace seen in three months in June. The number rose to a seasonally adjusted figure of 3.5%.

The number of building consents rose to a seasonally adjusted figure of 2,104 in June from the 2,033 recorded in May, according to Statistics New Zealand. Excluding apartments, seasonally adjusted consents rose 2.9%. Unadjusted residential consents rose 27% to 1,950 in June from the same month a year earlier.

"The June building consents data show a continued lift in house-building demand," Christina Leung, an economist at ASB, said in a note. "Today's result indicates the earthquake rebuild in Canterbury is firmly on track. Along with stronger house building demand in Auckland and improving non-residential building investment, we expect construction growth will continue to lead the New Zealand economy over the next couple of years."

The construction sector has been a major contributor to the New Zealand economy in recent years as they have been driven by the rebuilding of the earthquake damaged city of Christchurch. A shortage of housing in Christchurch has also assisted the increase in consents being issued.

The ‘Kiwi’ is likely to come under pressure later in the session as a number of key US data releases are expected to support the US Dollar which will in turn weigh upon its New Zealand counterpart.

GBP/NZD Update 31/07/2014

The New Zealand Dollar firmed against the Pound on Thursday after it found some support from dovish comments made by the US Federal Reserve. Despite the paring of its decline the ‘Kiwi’ remains vulnerable from softening commodity prices and a Central Bank that has warned that it could intervene to weaken the currency.

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