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Mixed Forecasts for Pound Sterling New Zealand Dollar Exchange Rate Following Go-Ahead Dairy Auction Results, Profit Taking Highly Harmful

April 20, 2016 - Written by Tim Boyer

NZD has dived lately against most of its peers, potentially on account of excessively profit taking on the part of investors. This may have been triggered by the rate positive dairy auction result.

Rising Dairy Prices Forecast to Support NZD



Yesterday’s Global Dairy Trade auction results are forecast to provide support for the New Zealand Dollar (currency : NZD) in the short-to-medium term.

The fortnightly online auction saw the Average Winning Price (AWP) increase by a heady 3.8% from the hammer price of two weeks ago; this was the second time on the trot and the third time in the last four auctions that the AWP has increased, leading some analysts to predict that global dairy prices may now have bottomed out.

New Zealand’s number one export remains Whole Milk Powder (WMP) and yesterday’s increase in the WMP fetching price of a massive 7.5% provided the Kiwi economy with a huge boost. The figure suggests that China, (New Zealand’s number one export destination for WMP), is beginning to experience a stabilisation in its economic conditions – a development which is likely to support the New Zealand Dollar into the medium term.

GBP/NZD Exchange Rate Touched a Low of 2.0355



The knee-jerk reaction to the dairy auction results saw the Pound Sterling New Zealand Dollar exchange rate slump to 2.0355 GBP NZD before it recovered slightly to edge back into the 2.0400s once more.

Many analysts therefore forecast that there could be further losses to come for the pair, with the two to one barrier providing a natural level of support in such an instance. There is little in the way of technical levels directly below 2:1 to stop the pair falling to 1.9000 if we do see consecutive closes in the 1.9000s.

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However, the improvement in global dairy prices is by no means guaranteed to persist.

Analysts at leading investment bank Rabobank issued a report last month forecasting a continuation of subdued trading in the global dairy markets for the remainder of 2016. Their assessment was predicated on further evidence emerging of a ‘hard landing’ for China’s economy.

Such a trot of events is predicted to send the Pound Sterling New Zealand Dollar exchange rate back up into the 2.2000s during H2 of 2016, providing the UK votes to remain part of the European Union.

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