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NZD GBP thoughts...

Written by Sam Coxhead on March 4th, 2011.      0 comments

10:45 AM (NZT) We are getting many enquiries with regards to the NZD against the GBP, here are some on my thoughts about the current factors affecting this cross.

The EQ in Christchurch has had one positive effect at least, weakening the NZD against the GBP.
We have been hovering around the .4550 level for a day or so now and the .4500 level is going to be a big test. This is the level at which the GBP stalled in August last year and provided a lot of resistance as the NZD was appreciating way back in December 2009.
I do not see any real reason for the NZD to spike higher in the short term apart from the possibility that next week the RBNZ surprise the market by not cutting the cash rate. Currently a cut of 25pts is fully priced in and the possibility of a 50pt cut has been as high as 60% priced. ANZ , NZ’s largest bank has already cut their mortgage rates in what looks to be to me an effort to put even more pressure on the RBNZ to cut by 50pts. Both Bill English and John Key have publically voiced their “personal” opinions that a cut in the cash rate would be appropriate at this time to help rebuild economic confidence.
If you still have GBP funds that you will be looking to repatriate at some stage, I would consider locking in some ahead of the RBNZ on the 10th.  I say this because the risk from here is the RBNZ does nothing for the time being. If they cut 25pts, the most likely outcome, then the market should not take off too much at all. And if they go 50pts then you will have an opportunity to transfer at even more favourable rates for the balance of your funds.
The NZD weakness is justified and I think we will see lower level in the NZD in the short term , but I am not sure it will be sustained over the medium term. We should have a very flat economy at best for 2011 but in 2012 I think that activity will increase and price pressure will return at the rebuilding really swings back into life. This will see the emergency levels of the cash rate reversed, and the soft nature of the NZD reversed with it.

The are just my personal thoughts, any feedback is welcomed!