Latest Specific Currency Report - Sterling Vs. Kiwi Dollar 18/02/10
The New Zealand dollar has been taking advantage of a surge in the value of other commodity based currencies like the Canadian and Australian dollars, both of which have hit record highs against sterling this morning. That fact alone should put buyers of the Kiwi dollar on high alert.
The pound took a hit yesterday after data showed that the UK government borrowed a further £4.3 billion in January, a month where tax receipts usually result in a surplus. Analysts were expecting a net influx of cash into government coffers, but a 7.7% fall in tax revenues combined with a 9.7% increase in public spending meant the January account fell into the red for the first time in 17 years. The figures surprised the market, sending sterling lower across the board. Also on the data front the minutes from the last Bank of England meeting were released on Wednesday. All nine members voted to keep QE on hold, although some of the arguments between controlling inflation and protecting growth were finely balanced. This had a neutral impact on sterling as it was largely within the market's expectations.
The technical outlook is negative. The 2.30 level proved too much for sterling, sending it lower in late January, and again in early February. We now appear to be heading for the Jan' lows at 2.16, leaving only the October low at 2.13 to protect against plumbing new depths. Buyers of the Kiwi should look to cover at least half of any requirement now, and consider placing a stop order to protect the balance against further downside.
Latest Specific Currency Report - Sterling Vs. Kiwi Dollar 05/02/10
Stock markets fall, dragging higher yielding currencies lower.....Bank of England halts QE, for now.
Extract from our January 26th update:
".....weighing on sentiment toward the high yielders is the dramatic stock market sell off seen over the last few days. If that trend continues and develops into panic, we could see severe weakness in currencies like AUD, NZD and the Rand. Buyers of these currencies should therefore be on alert for opportunities."
Stock markets rebounded slightly early in the week, but took a major drubbing yesterday, falling to three month lows. The market has been left punch drunk by the latest sell off, and every indication is that investor fear levels are starting to rise. This is exactly the sort of catalyst that could spark a dramatic unwinding of the so called "carry trade", where investors have borrowed in low interest rate currencies like USD, JPY and even GBP, and sold those currencies to buy AUD. As the Australian dollar starts to weaken, traders may dump the currency as their losses mount, causing further weakness. That's precisely what caused the unprecedented moves back in October 2008 when the Sterling/Kiwi rate briefly hit 3.02.
The big fundamental news this week is that the Bank of England have opted not to extend the £200bn asset purchase facility that was designed to increase money supply in the banking system. The bank were faced with a decision between bolstering the somewhat anaemic economic recover, and stoking inflation after recent data showed inflation hitting 2.9%, well above the bank's 2% target. Over all sterling has shown little reaction to the widely expected outcome, trading flat against the euro, and falling against an overtly strong US dollar.
On the other side of the globe, policy makers kept Australian interest rates on hold. Traders had been expecting another rate hike to 4% (current rate 3.75%) and in the absence of that were inclined to sell the Aussie dollar, which also hurt the Kiwi by implication. The New Zealand dollar was also hit Thursday by a weaker than expected jobs report which showed the unemployment rate hitting a 10 year high of 7.3%.
The technical outlook is in sterling's favour as we approach key resistance levels at 2.30 and 2.33. If we could break above those levels things would start looking pretty good for the pound. In the meantime we advise clients with NZD requirements to consider covering half at current levels, and take a wait and see approach on the balance.
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