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Pound Advances against New Zealand Dollar (GBP/NZD) as NZ Trade Surplus Widens Less than Estimates Suggested

March 25, 2015 - Written by Ben Hughes

The Pound to New Zealand Dollar exchange rate recorded gains after New Zealand’s trade surplus came in lower than expected in February.



The trade surplus reached only 50M after January’s 33M, despite much higher 350M estimates.

The lower figure has been blamed on waning Chinese demand as well as weaker milk prices. The prices of dairy products tumbled by around 50% last year and have struggled to rebound to anywhere near previous levels.

Statistics expert Jason Attewell stated: ‘Annual dairy export values are still coming down from the highest annual level, which was in mid-2014, but quantities exported have remained fairly stable. Annual values are now 16% lower than for the year ended August 2014 and are at similar levels to late 2013.’

Meanwhile, Chinese Consumer Sentiment increased to 114.7 in March after February’s 112.0 recording. Chinese ecostats can be influential for the New Zealand Dollar as such strong trade links exist between China and New Zealand. A rise in sentiment is likely to encourage economic growth, which can then impact trade demand. China’s central bank has been increasing monetary stimulus in the nation in an attempt to spur economic growth. Economist Huw McKay commented: ‘That underlines the fact that policy settings were overly tight in 2014, and that the progressive unwinding of those settings will benefit the economy this year and next. While the structural challenges confronting the economy are genuine, the survey argues very strongly that policy remains a potent cyclical force in the minds of consumers.’

The Pound enjoyed support from upbeat Loans for House Purchase data, which showed 37.3K new approvals were granted in February after January’s 36.4K. Economist Richard Woolhouse stated: ‘Demand for loans and other types of personal borrowing is rising at its fastest rate since the financial crisis. Consumers are feeling increasingly confident about buying big ticket items such as cars or home improvements as the recovery really begins to take hold.’

However, UK inflation fell to the lowest level on record this week and saw investor sentiment in the Pound wane as economists priced out a UK interest rate hike. Against a backdrop of weak worldwide inflation, tumbling oil prices and dovish central banks, it wouldn’t be a surprise if the Bank of England refrained from introducing higher borrowing costs until global circumstances became more favourable. Any central bank comments this week could cause fluctuations as investors attempt to price in rate hikes.

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