Latest Specific Currency Report - Sterling Vs. Kiwi Dollar 15th December 2008

The New Zealand dollar has continued to outperform the sagging pound over the last two weeks, even as the Reserve Bank of New Zealand cut interest rates by 1.5% on December 3rd, exceeding the Bank of England's 1% cut the following day.  With interest rates standing at 5% and 2% respectively, the Kiwi currency still represents a significant yield advantage.  As stock markets continue to recover from their November lows the high yielding currencies are benefiting from renewed demand as investor risk appetite returns.  As long as stock markets remain calm we still expect the GBP/NZD rate to drop back.  Support at 2.70 has been working well over the last few days but cannot be expected to hold for much longer unless a new catalyst develops to push sterling higher.
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
28th November 2008

  The pound has enjoyed a modest rebound against the Euro and US dollar over the last few days, but is struggling to sustain recent gains against resurgent high yielders as stock markets bounce sharply and investor risk aversion starts to dip.  Fear and risk aversion has been the dominant theme for the GBP/NZD exchange rate lately, but with global stock markets unlikely to resume October's extreme plunge (baring a new financial melt down), we expect risk appetite will gradually return, helping high yielding currencies outperform.  That would result in weakness for the exchange rate.

  Sterling remains especially vulnerable as woeful economic data continues to pile up, making further interest rate cuts more likely in the near term.  The Bank of England are meeting again on December 4th. 

 
The technical outlook remains negative.  Since the big spike in early October we've been seeing lower highs and lower lows, and it would take a close above 2.9000 to reverse this trend.  Now looks like a good opportunity to buy NZD however, as we are still trading well up from the 2.5750 levels seen only a couple of weeks ago.
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
17th November 2008

  The New Zealand dollar has continued its recovery since our last update.  We were expecting NZD to climb further as long as stock markets could avoid another panic sell off like the one witnessed in October.  Stocks have been sliding again, but on nothing like the scale we saw then, so the high yielders (AUD, NZD, Rand) have been taking things very much in stride. 

  Grim comments from the Bank of England Wednesday have helped push sterling lower again.  The recent 1.5% interest rate cut had been seen as a possible one off move likely to have put the prospect of further rate cuts on the back burner.  However, in the last few days the markets have started factoring in further cuts in the near future, triggering a further bout of pound selling.  Meanwhile, Kiwi interest rates have been cut by 1.75% since July.  Another half point cut is expected on December 2nd, bringing rates to 6%, still considerably higher than the headline UK rate of 3%, making the New Zealand dollar a relatively attractive currency as far as yield is concerned. 

 
The the GBP/NZD technical outlook is mixed following the collapse through late October, balanced by last week's strong bounce from support at 2.5800.  It would take a close above 2.70 to call the recent downtrend into doubt.
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
8th Novemeber 2008

  We don't always get it right, but in the case of the high yielders over the last few weeks we haven't been far off.  The New Zealand dollar has continued to rebound from the desperately oversold levels we saw a few weeks ago.  Those levels were the result of extreme panic in the financial markets, panic that is now settling.  Fear levels simply cannot remain so high for sustained period, as traders/investors who are in "flight" mode usually do their selling fairly quickly, and inevitably start to feel better once risk has been reduced or eliminated.  The US volatility index has dropped back from a high of 89 to 56 today.  We're looking at three charts in today's update.  The first two are very similar, charting the GBP/NZD rate, then the volatility index (widely known as the fear index).  As you can see, high levels of fear are strongly correlated with the NZD weakness we saw in October.  The third chart shows the US Dow Jones stock index.  This is basically the first two charts in reverse.  As stock prices fall, so does NZD, and up goes the VIX!

  What next?  Well, it seems unlikely that we will see another bout of selling like October.  As long as stock markets don't slide back into freefall we should see a relatively firm New Zealand dollar.  The GBP/NZD rate also founds technical resistance at 2.7000 Friday.  This level had been working as support in October, but now appear to present a barrier to further upside progress.

 
On another note, many traders were left scratching their heads after the pound remained firm on yesterday's unexpectedly large 1.5% interest rate cut.  The logical reaction would be sterling weakness, but in this case the pound is taking comfort from the fact that further rate cuts are now unlikely in the short term, and this decisive action may actually help the economy.
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
30th October 2008

  In last week's update we talked about the two factors likely to impact the New Zealand dollar.  The carry trade, and stock markets.  Here's a reminder of what we said;

  ....much of the selling of high yielders was driven by forced unwinding of "carry trades", where investors borrow Yen (at 0.5% interest) and change the currency for AUD, NZD or Rand, earning a higher interest rate over the life of the loan.  This strategy paid dividends over the last few years as high yielders rallied against the Yen, but when investor risk aversion hit fever pitch this month that trend reversed sharply as carry trade liquidation resulted in heavy buying of the Yen (to repay loans) and selling of the Australian dollar.....with the carry trade hopefully now largely out of the equation, the primary factor affecting NZD is the health of global stock markets..."

 
Since then the stock markets have rebounded sharply (the Dow Jones up 15% from the recent lows) and as expected, the Kiwi dollar and other high yielding currencies have also rallied as risk appetite returns to the market.  The GBP/NZD rate traded as low as 2.70 last week, and rallied back up to resistance around 2.90 on Friday.  This technical barrier worked again, and the rate is now dropping back.  Given the fact that financial markets appear to be stabilizing, it is likely that NZD would continue to strengthen as long as stock markets remain calm or trade higher.
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
23rd October

  The extreme volatility of the last few weeks has settled somewhat, with first tier high yielders such as the Aussie and Kiwi dollars finding support from heavily oversold levels.  Having declined over 15% in the first few days of October the New Zealand dollar now stands only 4% lower on the month.  Unsurprisingly the low for NZD roughly coincided with the stock market lows posted on 10th October after the panic triggered by the credit crisis.  During this rout the US volatility index reached levels never yet seen since records began in 1990.  Much of the selling of high yielders was driven by forced unwinding of "carry trades", where investors borrow Yen (at 0.5% interest) and change the currency for AUD, NZD or Rand, earning a higher interest rate over the life of the loan.  This strategy paid dividends over the last few years as high yielders rallied against the Yen, but when investor risk aversion hit fever pitch this month that trend reversed sharply as carry trade liquidation resulted in heavy buying of the Yen (to repay loans) and selling of the New Zealand dollar. 

 
So, with the carry trade now probably largely out of the equation, the primary factor affecting the Kiwi is the health of global stock markets.  Yesterday's heavy falls on the Dow Jones resulted in another sharp rise in the volatility index, but among the high yielders AUD and NZD held relatively firm in contrast to events a couple of weeks ago.  That could be an indication that the correlation between weak stocks and weak high yielders is breaking, and that NZD will continue to strengthen in the next few weeks, or may at least not fall quite as sharply as stock markets if the latest stock sell off continues.
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
13th October 2008

  The last two weeks have seen the most unprecedented volatility in currency markets as investors struggle to assess the risks posed by the banking meltdown.  High yielding currencies were sold indiscriminately, leading to a collapse in AUD, NZD and the Rand.  The wild intra-day swings have made picking a good trading rate almost impossible, but the good news for NZD buyers is that we are still trading at elevated levels around 10% higher than two weeks ago, providing an excellent opportunity to buy the currency.  Bother NZD and AUD rallied overnight as the  Reserve Bank of Australia took the step of guaranteeing all bank deposits for the next three years.  Wholesale funding will also be guaranteed in order to free up credit markets and bolster confidence.  These measures mean that investors may start moving assets back into these currencies, in particular the carry trades, where traders borrow in low yield currencies (principally the Yen) and invest the proceeds in high yielders.

 
The technical outlook remains extremely volatile, and guessing the next move is exactly that...A guess!  However, with fear in the markets having already reached unprecedented levels last week, and with the measures taken by the RBA, we could see the GBPNZD rate drop back to more normal levels if global stock markets can continue this morning's bounce.
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
30th September 2008

 
The New Zealand dollar weakened yesterday after the dramatic failure of the US financial "bailout" plan at the House of Representatives.  Lawmakers blocked the plan, leaving the crisis unresolved, sending the US stock markets sharply lower.  High yielding currencies have come under pressure as you would expect, but not to the extent that we saw two weeks ago.   Much of that selling (of AUD, NZD) was based on the unwinding of so called "carry trades" (where investors borrow in low interest rate currencies and invest the money in higher yielding currencies), and this time around the Aussie dollar is taking things more in stride.  The GBP/NZD rate rallied on NZD weakness, but has since fallen back as risk appetite rebounds along with the wider stock indices.  Based on the weaker correlation between falling stocks and the high yielders, we see some risk of downside in the GBP/NZD rate .  Levels of stock market fear measured by the US volatility index are now reaching unprecedented extremes, which strongly suggests that we will see stocks rebound soon.  It's hard to predict whether we've seen the worst, but typically highs in the volatility index tend to coincide with lows in the stock market.  With investor fear now at such extreme levels (and therefore appetite for high yielders low) we could see NZD continue to strengthen along with stocks if that proves to be the case.
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
22nd September 2008

  Last week's financial rollercoaster caused extreme volatility in the currency markets as investors struggled to interpret the latest events and allocate capital accordingly.  Today's sterling/kiwi chart shows the impact on the New Zealand dollar as traders aggressively sold the currency along with other "high yielders" while stock markets plunged around the world.  High yielding currencies are highly vulnerable during bouts of stock market weakness as capital is withdrawn from assets perceived as high risk, and reallocated to more stable currencies.  This correlation can be seen by comparing our first chart (GBP/NZD) with the leading US stock index (second chart) over the same period. 

  Stock markets rebounded strongly after the US and UK authorities imposed a ban on "short selling" activity for certain financial stocks (short selling is where traders speculate on falling stock prices by selling stock they do not own in the hope of buying back cheaper and realising a profit), and the US administration announced a $700bn plan aimed at absorbing questionable mortgage related assets from vulnerable financial institutions in order to lessen the risk of further collapses and bolster confidence in the markets.  Unsurprisingly, as stock markets rallied in response to the package, so did the New Zealand dollar, which has now regained all of last week's early losses.

 
The technical outlook for the GBP/NZD exchange rate is now negative.  The strong reversal from last week's panic sell off means we have probably seen a major low in stock markets, and therefore a major climax in the selling of high yielders.  The reversal also occurred from levels that were previously rejected back in August, which further strengthens the negative outlook.  Given the strong correlation between stocks and the kiwi right now, it's also worth noting that the US volatility index (an index that measures levels of investor fear and risk aversion) reached levels that are commonly associated with long term market bottoms during last week's rout.  That further reinforces our view that the worst is now behind us, which is good news for investors, but not so good for clients looking to buy New Zealand dollars.
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
4th September 2008

  The Reserve Bank of Australia cut interest rates by 0.25% this week in a widely expected move.  The Aussie and Kiwi dollars both weakened as traders reduced "carry trades", where currency is borrowed in a low interest rate territory and re invested in another currency offering a higher yield.  Much of the carry trade is funded by the Japanese Yen which carries an interest rate of just 0.5%. 

 
Since the rate announcement both currencies have regained most of the initial losses, and the GBP/NZD rate has made two failed attempts to trade higher, peaking at 2.6375 yesterday, and now testing technical support at 2.5800/2.6000.  Investors took advantage of the earlier losses, buying the high yielding currency and prompting a rebound.  Clients with NZD requirements should be cautious given the poor technical outlook.   The recent reversal from 2.75+ has left a negative bias, and this week's failed attempts to rally do not help the outlook.
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
13th August 2008

 Severe weakness in commodity prices, in particular the gold price, has been weighing on sentiment toward the New Zealand dollar over the last two weeks.  Also contributing to sharp falls in the currency is the increasing expectation that the Reserve Bank of New Zealand will make further interest rate cuts in the coming months, having already reduced the benchmark rate by 0.25% in July.

 
The positive technical outlook is under threat today, as we've seen a huge intra-day reversal in the exchange rate.   Having traded sharply higher overnight, the rate is now falling back sharply, and a close at or below current levels would leave a strong reversal pattern on the chart, which could signal the end of the recent uptrend.  Clients should consider taking advantage of the current rate.
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
24th July 2008

  The New Zealand dollar plunged yesterday as an interest rate cut dented currency's interest rate advantage, driving traders to sell out of so called "carry trades".  Carry trades are where investors borrow in a low interest rate currency (the Yen at 0.5% for example) and invest the proceeds in currencies paying a higher rate of return.  This trend accounts for much of the strength in AUD and NZD over the last year or so. 

 
The Reserve Bank of New Zealand cut rates by 0.25% to 8% on Wednesday and signaled further rate cuts as the economy slows.  Analysts were divided over the prospect of a cut because inflation reached 4% in the second quarter, higher than expected and well above the bank's 3% target.  The news sent the Kiwi tumbling, and we are now trading at an eight month high, giving NZD buyers a great opportunity.  Momentum has waned over the last few hours, so now may be a good time to lock in a rate of exchange if you need currency in the short term.  News released in the last hour revealed that UK retail sales fell 3.9% in June, far more than the 2.5% fall predicted by analysts.  Sterling has dropped sharply in the last hour in response to the data.
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
22nd July 2008

  The New Zealand dollar has been weak over the last couple of days as speculation intensifies that the Reserve Bank is set to cut interest rates by 0.25% at its meeting on Wednesday night.  Having come under pressure from analysts for maintaining high interest rates in the face of slowing growth, the Reserve Bank has been criticised for its rigid stance on "inflation targeting".  A rate cut now appears likely and is certainly being priced in by the markets.  This presents an opportunity for NZD buyers as the exchange rate rallies close to the recent highs.  Clients with NZD requirements should consider trading before Wednesday's announcement, or alternatively, a stop order* can be placed below the current rate to limit the risk of any downside movement.

  In the UK tomorrow morning (09:30) we are expecting the release of the minutes from the July Bank of England meeting.  This will reveal how the nine member panel voted when rates were held steady at 5%, and most analysts are expecting an 8-1 in favour of no change, with one dissenter voting for a cut.  If more than one member voted for reduced rates we could see some weakness for sterling.

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
11th July 2008

  Sterling has been listless over the last few days as the Bank of England kept interest rates on hold at 5% yesterday.  This was widely expected, and traders will be waiting for the minutes of the meeting in ten days to see how policy makers voted.

  Meanwhile, AUD and NZD have strengthened over the last 24 hours as the chances of a US rate hike recede.  Treasury Secretary Henry Paulson commented that markets will take "additional time" to fully recover from the home loans crisis.  No rate hike in the US would mean that Australia and New Zealand will retain a hefty interest rate advantage, prompting speculators to buy these currencies for the higher yield.

 
In our recent updates we have been more optimistic for the prospects for GBP/NZD than for GBP/AUD, which continues to languish close to multi year lows.  The technical outlook brightened after we broke above 2.5500 in early June, and we correctly predicted a further surge.  However, the outlook is now on shaky ground after repeated failures to hold above the resistance level at 2.6250 over the last two weeks.  We noted in our last update that a close below 2.60000 (based on the interbank rate) would be a cause for concern.  This hasn't happened yet, but with NZD on the front foot again it looks like the rally that began earlier this year may be peaking here.  Today's long term chart gives a clear flavour of trend over the last year.  A clean break above 2.6400 would be cause for renewed optimism, but right now we are very cautious and would advise clients to consider locking in current rates.
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
30th June 2008

  In our last update we maintained a positive outlook on the GBP/NZD rate.  The recent consolidation suggested that new highs were likely, and this was confirmed last week as the market accelerated higher on Thursday.  Sharp falls in the US stock markets prompted traders to sell high yielding currencies along with other assets generally perceived as high risk.  The Kiwi fell along with the Australian dollar and South African Rand.  However, these currencies are making a come back this morning, and we have now given back all of Thursday's gains.  A close below 2.6000 would be cause for concern from a technical perspective, as this would confirm the failure of last week's "breakout".  Clients with NZD requirements should be particularly cautious given the increased volatility over the last few sessions. 

 
The Reserve Bank of Australia are meeting tonight, with analysts expecting no change to the 7.25% base rate. 
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
20th June 2008

  Economic data has been mixed this week.  First we had unexpectedly high inflation figures in the UK.  Despite the usual association of high inflation prompting higher interest rates (which should be positive for the pound), sterling fell on the news as traders focused on the negative economic implications.  Then yesterday retail sales data for May came in well above expectations, rising 3.5% on the month compared to a forecast 0.1% decline.  This gave the pound a boost against the Euro and US dollar, but the high yielding currencies like AUD, NZD and ZAR were also in demand, leaving the GBP/NZD rate relatively unchanged. 

 
Sterling/Kiwi is still consolidating within 2% of the recent highs.  The technical outlook is still positive while we continue to trade above key support at 2.5500, but considering the unpredictable nature of the pound recently, client with NZD requirements should consider taking advantage of the recent strength, perhaps covering some here and then reviewing as the market dictates.  
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
10th June 2008

  The pound rallied across the board yesterday, making its strongest gains against high yielding currencies which were weaker after comments from US Treasury Secretary Henry Paulson suggesting that currency market intervention is not "off the table" should the US currency continue to slide.  Futures markets are now pricing in a 30% chance of the Fed' raising interest rates from the current 2% level at the August meeting, up from just a 10% chance before yesterday's comments.  This diminishes the relative appeal of higher yielding currencies which had been benefiting from the decrease in US interest rates.  The Kiwi was already on the back foot after comments from Reserve Bank of New Zealand governor Alan Bollard last week, clearly signaling interest rate cuts over the summer. 

 
The technical outlook received a boost with last week's close above 2.5550.  A strong rally yesterday tested to 2.6000 level, and the next noteworthy resistance is around 2.6200.  This represents a good buying opportunity.  If you don't need your currency immediately, you can still fix your rate by booking a forward contract.  Call your TorFX account manager for a live quote.
 

Latest Specific Currency Report - EUR NZD
6th June 2008

  The Euro/New Zealand dollar rate has been the strongest gainer among the cross rates this week.  On Wednesday night the Reserve Bank of New Zealand indicated that interest rate cuts were on the way before October, sending the currency sharply lower.  Then yesterday the European Central Bank signaled a likely rise in interest rates, prompting sharp and sustained gains for the Euro.  This combination has caused the EUR>>NZD rate to rally over 2.5% in just 48 hours.

  Reserve Bank of New Zealand governor Alan Bollard signaled rate cuts despite the expectation that inflation will continue to rise.  The RBNZ has been the target of criticism from senior economists who accuse policy makers of ignoring future growth in order to pursue a single minded policy aimed at keeping inflation under control.  Addressing this concern Bollard said that the economic outlook was bleak, and that interest rates will be cut despite the firm inflation outlook.  He noted that current market expectations were for a rate cut in October, so we should expect a move as soon as next month.  Rates were left at 8.25% this time.

  Meanwhile, in what he referred to as a "heightened state of alert", ECB president Jean Claude Trichet signaled that rates may have to rise in order to combat increasing inflationary pressures.  Second round inflation from the surge in commodity and fuel prices over the last 12 months can be expected to support the high inflation outlook over the medium term.

 
The technical outlook for EUR>NZD is positive.  The acceleration we've seen over the last 48 hours leaves the market testing two year highs, so we could see further upside over the next day or two. 
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
5th June 2008

  The New Zealand dollar plunged overnight as the Reserve Bank indicated that interest rates will be cut later this year.  Governor Alan Bollard signaled the move despite the expectation that inflation will continue to rise.  The RBNZ has been the target of criticism from senior economists who accuse policy makers of ignoring future growth in order to pursue a single minded policy aimed at keeping inflation under control.  Addressing this concern Bollard said that the economic outlook was bleak, and that interest rates will be cut despite the firm inflation outlook.  He noted that current market expectations were for a rate cut in October, so we should expect a move as soon as next month.  Rates were left at 8.25% this time.

  "It is clear New Zealand needs a change," said senior economist Ganesh Nana. "We challenge all political parties to give a clear indication of their choice for New Zealand's future economic policy. Do they stand for a framework founded on the supreme goal of low inflation? Or, are they prepared to abandon the failed experiment and adopt a balanced policy framework relevant to the needs of a small, open economy reliant on the fortunes of its export sector."

  The apparent change in tone from the RBNZ has spurred many traders to dump so called carry trades, driving the Kiwi lower.  Carry trades are where investors borrow in one currency where interest rates are low, and invest the proceeds in high interest rate currencies.  The favorite carry trade has been Yen to Kiwis due to the 7.75% difference in their respective interest rates.

 
The developments overnight represent an opportunity for clients who are looking to buy NZD.  We are once again testing the 2.5500 level that has repelled the market several times over recent months.  Clients should strongly consider taking advantage of this rally by trading now, or placing a stop order in the market to lock in some of the overnight gains while also protecting against renewed weakness.
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
20th May 2008

  The New Zealand dollar has strengthened from four month lows touched briefly at the end of last week.  In recent reports we have noted the key technical resistance at 2.5575.  The market broke through this level on Thursday, only to be strongly rebuffed, leaving a negative reversal pattern on the chart.  Further downside is therefore likely in the short term.

 
The Kiwi is also being dragged higher by a strong Australian dollar, which hit fresh 24 year highs against the US dollar yesterday.  Minutes from the latest Reserve Bank of Australia meeting indicated that policy makers may raise interest rates again this year.  Meanwhile, investors continue to buy NZD for its 8.25% yield, the second highest for any Aaa rated nation after Iceland.
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
12th May 2008

  The New Zealand dollar fell sharply toward the end of last week after a gloomy house price report added to speculation that interest rates have peaked at 8.25%.  Analysts are now expecting rate cuts up to 1.25% over the next year.

 
The Kiwi has diverged sharply from the Aussie dollar over the last week, the latter strengthening to 11 year highs against sterling, while the Kiwi sinks back toward the March lows.  A close above 2.5575 would be a positive development.  This has been a key resistance level over the last 10 weeks.
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
6th May 2008

  The pound was once again rebuffed from the 2.5575 resistance level last week, and we are now heading back down towards support at 2.4500.  Meanwhile, the Sterling/Australian dollar rate is making new multi year lows this morning, which could drag GBP/NZD lower.  The Reserve Bank of Australia held its monthly board meeting earlier today, and left interest rates steacy at 7.25%, a 12 year high. 

 
Having failed at our key resistance level three times over the last few weeks, our cautious optimism for this market is now evaporating, and we are advising clients to cover any short term NZD requirements at current levels.
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
2nd May 2008

  Sterling has strengthened toward the 2.5575 resistance again, spurred on by positive comments in yesterday's Bank of England financial stability report.  Coupled with firm data on inflation, the chances of a May interest rate cut are receding, helping buoy the pound.

 
The technical outlook would improve markedly if sterling can close above 2.5575.  We've been watching this level for some time, and the market has twice tested the highs here during the week.  We remain cautiously optimistic.
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
28th April 2008

  Since our last report the Sterling/Kiwi rate has remained within the trading range we've been monitoring.  We are trading toward the top of this range again today.  The Kiwi has been on the backfoot since last week's interest rate review, which adopted a more dovish tone than in recent months.  Reserve bank governor Alan Bollard kept rates on hold at 8.25% and changed the wording of his statement to reflect the possibility of rate cuts later in the year.  This is in response to a growing consensus that growth in the country could slow to just 1.5% this year, the slowest pace in a decade.

 
We are still cautiously optimistic in the short term as long as the market can hold the 2.4500 support.  If sterling can break above the 2.5500/75 resistance, further gains toward 2.6225 are likely.
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
18th April 2008

   Sterling found broad based support yesterday as the government moved to implement measures to help the struggling interbank lending market.  Banks have been wary of lending to eachother, leading to a credit crisis that has far reaching implications for the UK mortgage market.  Now the Bank of England is finalizing plans to allow banks to exchange mortgage based assets for Treasury gilts in order to restore confidence and kick start interbank lending.

  Another key aspect of this plan is that it could alleviate the credit crunch without necessarily requiring further interest rate cuts, bolstering the appeal of sterling as an investment.  This is reflected in today's market movement as traders unwind Euro holdings in favour of Sterling.

 
The technical outlook is mixed, but there is room for cautious optimism if the pound can continue the strong rally that began yesterday.  Having rejected 2.5500 in early April the market dipped back toward support at 2.4500.  We bounced just ahead of this level last week, and positive momentum has gathered over the last 24 hours.  A close above 2.55 would give a significant technical boost, opening the way to the next key level at 2.6250. 
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
9th April 2008

  Sterling fell sharply yesterday after a Halifax house price survey revealed a 2.5% fall in March, much more than the 0.4% decline expected, and the largest drop since 1992.  This brings the annual pace of house price growth right down to 1.1%, and increases the chances of an interest rate cut from the Bank of England tomorrow (Thursday).  Gordon Brown made some blunt remarks to the BBC yesterday, saying that interest rates can be cut, because inflation is low.  The government will also be meeting the council of mortgage lenders over the next few days to discuss ways of tackling the housing slump.

 
The technical outlook has deteriorated over the last few days.  After testing the March highs, sterling retreated sharply on Friday, and has accelerated lower this week.  We are now testing the 2.4500 support level that marked the low in mid March.  A break below here would open the way to further losses, and the multi year lows just above 2.4100.  Clients with NZD requirements should consider fixing their rate now to avoid further downside.
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
4th April 2008

  The New Zealand dollar is heading for a weekly decline against sterling as expectations of slower growth (in NZ) impact the currency.  Business confidence fell to a 17 year low in March, and building activity also slowed, prompting some analysts to call for an interest rate cut by the end of 2008.  Economic growth is forecast to slow from 3.1% in 2007, to 1.4% this year, not helped by the record high interest rate of 8.25%.  The high yield makes the NZD a favourite of the so called carry trade, where investors borrow in low interest rate currencies (predominantly the Yen) and move money into high rate currencies to make a profit.  If carry trade activity starts to unwind as NZ lower their interest rates, the Kiwi could come under sustained pressure.  So far this has not been the case, and there is only a 25% chance of a rate cut by September.  However, any new data confirming the slowdown may increase this chance over the next few months.

 
The technical outlook is improving.  The market is approaching the key resistance at 2.5585.  A close above there would be a positive development, signaling a likely continuation of the short term uptrend that began in late February. 
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
27th March 2008

  Sterling rallied sharply against NZD earlier this month as global risk aversion spiked higher and stock markets slumped back toward the January lows.  Since then markets have stabilized, while commodity prices have remained strong, providing some support to NZD.  The Kiwi currency has fared better than AUD or CAD over the last few days, supported by the 8.25% yield which is still the highest in any major world economy (excluding South Africa).  On balance, Sterling has held steady against NZD over the last two weeks, despite weak sentiment toward the pound due to rising fears of a banking crisis.  The UK banking sector shares the high exposure to sub prime debt that has been dogging US banks and the dollar.  If sentiment toward the pound can improve, we could see further gains for GBP/NZD.  Clients should however remain cautious, since the long term trend is still down.

 
There is support at 2.4500.  This level worked back in early February, and again last week.  A close below here would therefore be a negative signal.  Clients may want to consider placing stop orders below this level to protect against renewed downside.  Meanwhile, the next significant resistance level is the early march high around 2.5525.
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
12th March 2008

  Yesterday's surprise $200bn measures by the US Federal Reserve to help relieve the pressure on credit markets has caused a sharp reversal in the GBP/NZD exchange rate.  Investors rushed back into high yielding ("riskier") currencies as stock markets rebounded from the lows.

 
The sharp reversal could indicate an end to the recent improvement, opening the way for a return the the recent lows around 2.4150 should stock markets continue to recover and risk aversion diminish.  Clients with NZD requirements are advised to be cautious in this volatile climate.  If you need to fix your exchange rate, or wish to protect against further weakness, please speak to your TorFX account manager.
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
11th March 2008

  The New Zealand dollar has remained weak since last week's Reserve Bank of Australia announcement on interest rates.  The bank increased rates to 7.25% but signaled that this would be the last hike for some time amid growing evidence of a slowing economy.  Heightened levels of investor risk aversion have also hampered AUD and NZD over the last few days as weak stock markets stimulate a move away from high yielding currencies which are generally perceived as more risky.  The key US Dow Jones stock index is now flirting with the lows set during the stock rout in January, so fear levels could increase if we break these levels, sending NZD lower. 

  Wednesday sees the release of UK trade balance figures and the Budget speech at 12:30.

 
The technical outlook has improved with the breakout from the trend channel.  The next significant resistance level is just above 2.6000.  Clients with short term NZD requirements should consider placing stop order to protect against renewed downside. 
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
5th March 2008

  New Zealand's currency has declined over 3%since making a new high of 2.4130 against sterling last week.  Weighing on sentiment are renewed fears over the health of the US economy, prompting traders to reduce so-called carry trades, in which assets are placed in high yielding currencies.  A reduction in these positions result in selling of currencies which carry high interest rates.  Risk aversion prompted by falling stock markets can help the sterling/kiwi exchange rate trade higher in the short term, however, the trend is still down, so clients may wish to take advantage of the current bounce.

 
The market is now testing the top of the recent trend channel.  It would take a close above the resistance around 2.5250 (February high) to constitute a convincing breakout and open the way to a deeper correction.
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
27th February 2008

  The New Zealand dollar has strengthened further as speculation increases that the US Federal Reserve will cut interest rates again at the March 18th meeting.  Lower US rates drive funds toward higher yielding currencies such as AUD and NZD, where traders can earn a better return.  The New Zealand dollar currently has an interest rate of 8.25%, 5.25% higher than its US counterpart.  If the Federal Reserve cut rates by another 0.5% in March as expected, the yield gap will widen again.

 
The technical outlook is still negative.  Having tested the 2.4150 support over the last 24 hours, the reaction has been minimal, despite the release of a business confidence survey showing a sharp deterioration in optimism in new Zealand.  The market is still focusing on the yield gap, suggesting that further weakness in the exchange rate is likely. 
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
18th February 2008

  The announcement of Northern Rock's nationalization sent sterling lower again this morning, and the GBP/NZD rate is now trading close to the recent lows around 2.4500.  The next significant support level is 2.4150 which marked the low in late 2005.  The New Zealand dollar fell sharply from this level back then, trading as low as 3.05 over the next few months, so traders will be watching closely for a reaction if the market continues to trade to the downside from here.

 
Data for the week ahead includes the minutes from the last Bank of England meeting.  The market will be looking at how the nine member panel voted for clues as to the likelyhood of another interest rate cut.  This report is released on Wednesday at 09:30.
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
14th February 2008

  The governor of the Bank of England painted a gloomy picture of the UK economy for the year ahead at yesterday's quarterly inflation report.  Citing rising inflation and flat house prices, Mervyn King noted the weakness in the pound as a potential bright spot for UK exporters.

  Sterling's reaction to the report was a non-event, as fears over an economic slowdown were largely offset by the comments on inflation, which suggest that price rises will limit any further rate cuts, which helped the pound to tread water or make modest gains against most other major currencies.

 
The technical outlook for GBP/NZD remains negative.  Sterling managed to gain on yesterday's inflation report, but the downtrend is still intact for now, making new lows highly probable over the next few weeks. 
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
7th February 2008

  As predicted in our recent reports, the market has fallen back to test the recent lows at 2.4700.  So far this level has worked as support, but the trend is still down, so our outlook remains negative.

 
The Bank of England cut interest rates by 0.25% today in a widely expected move.  The market reaction has been minimal.
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
1st February 2008

The long term outlook for GBP/NZD is remains negative.    In Tuesday's update we predicted further downside, and this remains the case.  The next support level is the January low at 2.4700.  The last time sterling traded below here was in 2005, when the market touched a low of 2.4155.  This will be a key support level if the market continues to deteriorate from here as expected.

  The only possible catalyst we can see for a rise in the GBP/NZD rate is a new bout of financial market turmoil.  Even then, the correlation between weak stock markets and a weaker NZ dollar has diminished over the last few months, as noted in our updates.  Clients with NZD requirements over the next year should consider either covering their exposure here by booking a forward contract, or place a stop order below 2.4700* to protect against a fall to new lows.  A stop order may be preferable for those with no immediate requirement, since it protects against further weakness without risking much from current levels, while also allowing the chance of benefiting from any rally, should it materialize.

*All technical comment is b ased on the interbank rate.  The rate you achieve will depend on the volume of currency traded.

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
29th January 2008

 
In last week's update we were talking about how the severe falls in world stock markets were translating into weakness in the New Zealand dollar/better exchange rates for anyone buying NZD.  Since then the market turmoil has settled considerably, and the Kiwi dollar has started to strengthen again as investors dip a toe back into risk assets (which include high yielding currencies).  Last week's stock market reversal looks like it could mark a major low, as levels of fear measured by the US volatility index reached the highest level since the credit crisis last summer.  High levels of pessimism are well correlated with market bottoms, and since the main driving force for NZD weakness over the last few months has been equity market weakness, we are now adopting a very cautious view of the GBP/NZD exchange rate.  If stock markets continue to recover the exchange rate will probably decline towards the recent lows around 2.4700.
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
22nd January 2008

  In last week's update we drew attention to the weak US stock market, and the correlation between sharp falls in stock prices and weakness in high yielding currencies like the Aussie/ Kiwi dollars and the Rand.  This trend has accelerated over the last few days as massive losses for global equity markets have translated into higher exchange rates for anyone buying these currencies.  This afternoon saw the US Federal Reserve respond to the market turmoil by cutting interest rates 0.75% in a surprise move.  The last time rates were cut by 0.75% was 1984 ! 

 
Clients with NZD requirements should strongly consider using a stop order to protect against renewed weakness.  Following on from the US rate cut and a partial recovery in stock markets this afternoon, NZD has strengthened.  The exchange rate should tick higher again  if the global stock market plunge resumes, but today's price action looks negative and could signal a short term top. 
 

 

 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
16th January 2008

                                                                                                                                                                                                                                                                                                                                                                                                          
A renewed bout of stock market selling has seen high yielding currencies fall sharply over the last 24 hours.  The correlation between weak stock markets and weaknes high yielders had all but vanished toward the end of 2007, but renewed fears over sub prime debt and a slowing US economy triggered the US Down Jones index to fall to 9 month lows, prompting speculation that we may be at the start of a bear market.  If stocks continue to fall sharply over the next few days this should trigger further weakness in the New Zealand dollar as investors flee risky assets.  Clients should be ready to take advantage of any spike in the exchange rate.  One way to minimize risk from here would be to place a stop order below yesterday's low at 2.4660.  This allows you to ride any continued upside, while guaranteeing a "worst case" exchange rate if the market falls back to new lows.

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
11th January 2008

 

  Sterling fell yet further yesterday, despite the Bank of England holding interest rates steady at 5.5%.  After an initial rally, the pound fell to new lows as traders focused attention on the increased probability of a rate cut in February.  As prospects for US interest rates also point to the downside over the first half of 2008, high yielding currencies such as AUD and NZD are looking increasingly attractive to investors.  Meanwhile, the stock market wobbles that caused the heavy selling of these same currencies last summer are failing to have a similar effect these days.  We noted the weakening of this correlation back in November 2007.

  New Zealand's statistics office will report fourth quarter consumer price index data on January 17th.  These data are expected to confirm inflationary pressures, keeping any talk of a rate cut on the back burner for the short term.  The Reserve Bank of New Zealand hiked interest rates four times last year, and the currency currently offers 8.25%, one of the highest rates for an actively traded currency.  The Kiwi currently enjoys a 4% yield advantage over the US dollar. 

 
The technical outlook remains negative.  Following the break of key support at 2.5475 on Wednesday, the market has dropped another 2%.  Sterling is now trading well off the day's early lows, and could even close positive this evening, though it takes a close back above 2.5475 to improve the technical outlook. 
 

Latest Specific Currency Report - Sterling Vs. Kiwi Dollar
3rd January 2008

 

  The search for higher yields is driving the New Zealand dollar higher against both sterling and the US dollar.  Falling interest rates in the US and UK contrast sharply against the 8.25% return offered by the Kiwi.  A unanimous Bank of England vote in December, coupled with weak economic data increases the chances of further cuts in the near term.  The next meeting is January 10th.

 

The technical outlook remains negative.  We are now testing levels last seen in July 2007.  The next technical support is seen at 2.5100, then the December 2005 lows around 2.4150.

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