Pound to New Zealand Dollar (NZD) Exchange Rate Trades Higher on British Currency Strength

July 3, 2014 - Written by Ben Hughes

STORY LINK Pound to New Zealand Dollar (NZD) Exchange Rate Trades Higher on British Currency Strength

The Pound to New Zealand Dollar (GBP/NZD) exchange rate gained in the mid-week session after it found support from the release of better-than expected construction purchasing managers index data, the Kiwi meanwhile was weakened by a further fall in dairy prices.

Sterling advanced to a 21-month high against the Euro and advanced to a new five and a half year high against the US Dollar as well as making gains against the majority of its other most traded peers.

The currency’s gains came after Markit’s Construction PMI came in far better than forecast. The PMI increase to 62.6 in June, up from the 60.0 in May and was the highest reading seen since February. Economists had been expecting a decline to 59.5.

Construction firms also showed that they are hiring staff at the fastest pace seen since the survey began in 1997. The previous day showed that manufacturing activity in the country advanced more than forecast last month.

“Strong rebound in growth momentum across the UK construction sector, driven by faster expansions of housing and commercial building activity. Volumes of new work received by UK construction companies increased sharply in June and at the fastest pace since January. Stronger demand for new construction projects in turn led to a rapid increase in staffing levels, with the rate of job creation accelerating to its sharpest since the survey began over 17 years ago,” said Markit.

The New Zealand Dollar was put under pressure early in the session after a report showed that dairy prices dropped to their lowest level in 18 months, raising concerns over the strength of the local economy.
According to Fonterra’s latest Global Dairy Trade Index prices fell by 4.9% to $US3,595 a tonne marking its ninth decline in the last 10 auctions and was at the lowest level since January 2013.

A separate report compiled by ANZ also showed that its commodity price index dropped for a fourth consecutive month in June. With dairy goods making up 30% of New Zealand’s yearly exports any drop in prices has a negative impact upon the country.

"New Zealand has high terms of trade, where our commodity prices are high and our currency is high, so we're selling our goods at their highest possible price, When the commodity prices slip there's an idea, or a reasoning, that the economy is not going to do as well so we're not going to earn as much and the currency doesn't deserve to be where it is,” said a senior dealer at OMF.

The ‘Kiwi’ did make gains against its Australian peer after the larger South Pacific nation’s trade balance slumped more than expected in May.

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According to figures released by the Bureau of Statistics Australia’s trade deficit widened far more than expected as Iron ore prices fell. The ‘Aussie’ trade balance deficit widened by $1.9 billion and increased by $1.1 billion from the previous months. The figure marked Australia worst trade figure since January last year. As a result the ‘Kiwi’ was able to tick higher against its relation.

The New Zealand Dollar could find some support later in the session if today’s comments by US Federal Reserve Chair Janet Yellen continue to add to last week’s dovish stance and the day’s ADP employment and factory orders data disappoints.

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