NZ Dollar FX Forecasts: GBP/NZD Exchange Rate Advances Despite NZ Unemployment Drop But Slips Today

November 6, 2014 - Written by Frank Davies

STORY LINK NZ Dollar FX Forecasts: GBP/NZD Exchange Rate Advances Despite NZ Unemployment Drop But Slips Today

Yesterday saw the Pound Sterling climbing versus the New Zealand Dollar (GBP/NZD) despite upbeat data for New Zealand. New Zealand’s Unemployment Rate sank in the third quarter to 5.4% from 5.6%, bettering economists’ 5.5% forecasts. Furthermore, New Zealand Employment Change saw 0.8% growth which also excelled above the 0.6% expectation.

Wednesday’s jobless figure was a five-and-a-half year low, showing the New Zealand economy is continuing to improve.

New Zealand Job Growth could Allow Inflation Boost

The Reserve Bank of New Zealand (RBNZ) recently paused its rate hiking cycle, but since then job growth has expanded at a faster pace than economists’ first thought. The New Zealand Dollar suffered a blow when it was revealed that inflation in the Trans Tasman nation had fallen to a shockingly low level in recent months. Any increase in job growth should allow wages and price inflation to continue on an upward trajectory in the near future—a piece of good news for the New Zealand economy.

ANZ Bank economist Mark Smith commented: ‘Inflation needs to actually show up. Wage inflation is firming but remains at modest levels for this stage of the cycle. The RBNZ will need more evidence before changing its on-hold stance.’

However, while the ‘Kiwi’ was initially supported by the jobs report, the latest Fronterra dairy auction showed another fall in prices. The price index dropped by 0.3% on Tuesday after falling by almost 50% already this year. However, some economists believe that the recent price crash could recover and stability for New Zealand’s largest export could be fast approaching.

ASB Bank commented: ‘We expect that as global production growth slows and demand picks up, overall dairy prices will stabilise more decisively over the coming auctions before significantly recovering over 2015.’

Pound to NZ Dollar Exchange Rate Softens on Weak UK Data

Meanwhile, the Pound has been bruised by the release of Markit’s Services and Composite Purchasing Managers Indexes (PMI), which both fell below economists’ expectations. The UK services sector saw a fall in productivity from 58.7 in October to 56.2. Furthermore, the composite measure softened to 55.8 from 57.4. As the Monetary Policy Committee’s (MPC) latest policy meeting takes place, Wednesday’s figures are further ammunition for the Bank of England (BoE) doves who wish to keep UK interest rates at their current low.

Economic expert Martin Beck stated: ‘With the MPC beginning its November meeting today, these results are likely to strengthen the conviction of the doves that this is no time to think about raising interest rates.’

Wednesday will also see the release of New Zealand House Price data, while UK Industrial Production, Manufacturing Production and Gross Domestic Product Estimate figures are out on Thursday, alongside the Bank of England rate announcement. No other New Zealand data is scheduled for release over the rest of the week, leaving Friday’s GBP/NZD movements dependent on the UK’s Total Trade Balance figures and BoE Governor Mark Carney’s statements at his conference in Paris.

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