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Quick thoughts on NZD/GBP and brief update

Written by Sam Coxhead on May 25th, 2011.      0 comments

4:25 PM (NZT) You may have noticed that the NZD has climbed back to the upper end of the NZD/GBP wider range. In the European session yesterday, the high was in fact .4960 (2.0161).
The appreciation , against the trend of lower risk, was started last Friday when a large US bank came to the market with a large buy flow in NZD. They bought NZD almost across the board and the flow surprised most observers. Since then we have seen Fonterra release strong dairy payout details and the RBNZ Inflation Expectations survey showed increased inflation expectations over the last quarter. This has further underpinned demand for NZD, and re-insurance demand has also been noted.
This demand has pushed the NZD higher against most cross rates and we are currently at reasonable resistance levels against a number of currencies.
With little in the way of NZ news for the remainder of the week , it is going to be interesting to see is this strength can be maintained.
I expect that the RBNZ will look through the current inflationary prices when making their assessments with regards to monetary policy. Activity is expected to pick up in the second half of 2011 due to a number of factors including the Rugby World Cup. This pickup in activity is very much needed in a domestic economy that is showing patchy form at best. Currently the RBNZ expect 4%+ growth in 2012 as the massive effort to rebuild Christchurch commences. After this growth is expected to tail off back towards longer term averages of 2-3%.
In the meantime, the NZD gains are mostly unwarranted to my mind, and patience is required by those with similar interests to yours. I maintain the opinion that the NZD will give up ground against the GBP, but mostly due to NZD weakness as opposed to any real GBP strength. With this view in mind, the dips maybe shallower than many expect and I regard .4500 (2.2222) as a target for good value buying of NZD with GBP in the current environment. Helping get the NZD lower will hopefully be a turnaround in the fortunes of the star performer of 2011 so far the AUD.

The Asian market has traded with risk aversion generally today and this has just accelerated a touch, The AUD/USD is really testing some resoanble support around the 1.0480 level currently and it will be very interesting if it can maintain its heavy bias from here. There have been rumours floating around of a snap Greek election which would not be at all helpful with the plans to cut government spending. The released Bank of Japan Monetary Policy Meeting minutes also show discussion on further easing poilices were made.

Current market levels are :
NZD/USD .7922
AUD/USD 1.0480
NZD/AUD .7556
NZD/AUD 1.3234
NZD/GBP .4899
NZD/EUR .5642
NZD/JPY 64.93
NZD/CAD .7760