NZ Dollar Outlook: GBP/NZD Exchange Rate Tumbles as UK Data Flops

October 29, 2014 - Written by Toni Johnson

STORY LINK NZ Dollar Outlook: GBP/NZD Exchange Rate Tumbles as UK Data Flops

The Pound Sterling slid vs the New Zealand Dollar exchange rate (GBP/NZD) on Wednesday after New Zealand Business Confidence rose for the first time in eight months.

UK data also fell flat, adding additional downward pressure to the Sterling exchange rate. The ‘Kiwi’ could soften if the Reserve Bank of New Zealand (RBNZ) decides to prolong the pause in the interest rate hiking cycle, which has seen four consecutive increases so far this year.

Speculation surrounding the RBNZ decision has heightened in recent weeks as many suspect that the recent depreciation in the ‘Kiwi’, coupled with tumbling inflation and falling dairy prices, is enough to see the central bank take an extended rate-hike break. Furthermore, China—New Zealand’s largest trading partner—has dropped its demand for milk, causing experts to believe that the commodity currency could fall to two-year lows.

NZ Dollar Offered Support from Climbing Business Confidence

New Zealand Business Confidence fell to a two-year low in September, offering the NZD little support.

However, the recent New Zealand general election has offered some certainty for the nation and as a result the index has climbed from 13.4 to 26.5 in October.

The ANZ report stated: ‘A net 27% of firms are optimistic about the general prospects, up 14 points on the month prior. We put September’s decline in confidence down to politics and this month we say the same. Confidence is still well down from its February euphoria (a net 71% of firms were optimistic back then) but readings are still north of the long-run average.’

Meanwhile, UK data disappointed investors on Wednesday with Money Supply, Mortgage Approvals and Net Lending Secured on Dwellings all falling below economists’ expectations.

Last month saw UK mortgage lenders issue the least amount of home loans in over a year, supporting those economists who believe the British housing market is cooling.

Wednesday’s figure adds to the recent revelation that UK house prices fell by 0.2% in September—the steepest depreciation in almost a year.

Economist Howard Archer stated: ‘House prices and activity have at least temporarily come off the boil. Factors affecting the housing market are tighter mortgage lending rules and fears of UK interest rate hikes in the near future.

UK and NZ Data Releases to Affect the GBP/NZD Exchange Rate

The RBNZ announcement will be the main event to affect the Pound to New Zealand Dollar currency pair on Wednesday.

However, Thursday will see the release of RBNZ Net Currency Sales as well as New Zealand Business Permits. The UK will be quiet by way of data releases with only Friday’s Consumer Confidence yet to be published. The confidence figure is expected to stagnate at -1 in October as it did in September.

One factor that may offer the New Zealand Dollar some support is China’s Manufacturing Purchasing Managers Index (PMI) on Saturday. If New Zealand’s largest trading partner is performing well, it can offer some support to the NZD.

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