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2016

New Zealand Dollar Research Report

Published: Wednesday 07 September 2016

  • The resilience of the Kiwi is causing headaches for the RBNZ
  • Pound continues to struggle to make any significant gains over NZD

NZ economic data has been stronger of late; its biggest soft export, dairy prices, showed price gains of 12.7% and 7.7% at the two most recent auctions. Business confidence has also been strong coming in at 16 in July and 15.5 in August. This has attracted investors back into the Kiwi which is one of the strongest performers of the last month and has also seen NZ banks increasing their growth forecasts for the remainder of the year.
 
The resilience of the Kiwi is still causing headaches for the RBNZ however as exports rely on a weaker NZD to remain competitive. Central banks continue to grapple with the effect of further interest rate cuts by helping to weaken the currency and boosting exports versus stoking an already sizzling property market with cheaper borrowing.
 
Analysts expect that the RBNZ may cut interest rates to 1.75% before the year end and compared to the current Bank of England base rate of 0.25% there’s still a significant yield advantage for investors attracted to the greater return on their money that NZ offers. This is likely to remain the case for the next few months at least, particularly if the Bank of England cut interest rates again this year. So going forward the Pound may still struggle to make any significant gains over the NZ Dollar until we’re into 2017.
 
Technically the GBPNZD bounced off the all-time low at 1.7700 after hitting it in July and August and that will be key support going forward. A break below there could up another significant move lower as New Zealand bank ASB suggests the next target is 1.6100. For the time being however, the Pound has managed to remain resilient against all major currencies with UK economic data beating expectations over the last fortnight. The GBPNZD rate has recovered to 1.8250 levels with the potential for a move up to 1.8500.  On the downside, another retest of the 1.77 low may be seen and should that give way expect another drop.
 
I often conclude with recommending that clients employ stop loss orders below key technical levels so that if the Pound is about to take another fall lower, you have a safety net in place which triggers the conversion of your funds just before another significant drop – if you do wish to place a stop loss order below 1.77 then please contact us or alternatively click here to learn more about stop losses.
 
The outlook for the UK and the Pound remains uncertain and will doubtless be that way for some time, perhaps the adage “a bird in the hand….” is applicable in this instance so please contact your Halo Consultant if you wish to and hedge your bets and convert a portion of your assets at the current level.



FX Research and analysis by Alastair Sweetman

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