Market Forecast - Sterling Vs. Kiwi Dollar - 24/09/09
Sterling plunged this morning, spooked by a series of negative news reports and comments from Bank of England governor Mervyn King saying that sterling weakness was "helpful" in rebalancing the UK economy.
We have been hinting at the Bank of England's implicit approval of sterling's slide for the last few weeks, and now they have come right out and said it! That is unhelpful for the pound, which was just starting to gain a little traction yesterday following the release of the most recent Bank of England meeting minutes which showed that all nine members voted to keep the central bank's assets purchase programme (otherwise known as quantitative easing) on hold at £175bn.
King's comments have overshadowed the relief rally that we saw yesterday, and sterling is now trading at its lowest level against the Aussie dollar since our charts begin in 1991.
The Sterling/Kiwi exchange rate is now testing all time lows (at least as far as our charts go back, circa 1991), and with Sterling/Aus' making breaking below its 1991 low today, there's no reason to think this market won't follow. We continue to advise clients to cover at least half of any NZD requirement now to avoid the risk of further downside.
Market Forecast - Sterling Vs. Kiwi Dollar - 17/09/09
Things were starting to look better for Sterling late last week as the latest Bank of England decision reassured investors. The lack of any further quantitative easing ("QE") gave traders a reason to buy the pound for once. Unfortunately that reason was removed yesterday as Bank of England governor Mervyn King gave another gloomy update in his quarterly inflation report. Labelling the durability of the recovery as "highly uncertain", he indicated that further easing could be in the pipeline. Inflation figures for August were slightly higher than expected, but this failed to offset the comments.
Meanwhile, the New Zealand dollar has been capitalising on sterling's weakness and also received a further tailwind after the Reserve Bank of New Zealand kept interest rates on hold at 2.5% at the latest meeting. More significant than the decision itself was the removal of the phrase "the OCR [official cash rate] could still move lower over the coming quarters". That change put investors on notice that interest rates have probably bottomed out and that the next move could be up.
The technical outlook for sterling remains bleak. There is no noteworthy technical support until the 1996 lows at 2.2250, and unfortunately no sign that sterling's decline is coming to an end.
Market Forecast - Sterling Vs. Kiwi Dollar - 11/09/09
Sterling jumped yesterday after the Bank of England left interest rates unchanged at 0.5% and made no further increases to the quantitative easing programme. The pound has been on the back foot since last month's central bank meeting at which they raised QE from £125bn to £175bn.
The minutes of that meeting showed that three of the nine strong committee actually voted for a larger increase, putting the markets on notice that further increases were likely. More QE means more money in the system, effectively devaluing the pound against its peers. Traders reacted with relief, bidding the pound higher in the short time since the noon announcement. We will have to wait a few days for publication of the minutes of today's meeting to show how last month's 6-3 skew may have changed.
Meanwhile, the New Zealand dollar has remained generally well bid as gold continues to flirt with the key $1,000 per ounce mark. Stock markets are also performing well, keeping investor risk appetite buoyant and supportive of high yielding currencies. Strong bank lending data from China also helped the Aussie and Kiwi dollars today.
While sterling's technical outlook against the Euro and US dollar have improved on yesterday's bounce, the Sterling/Kiwi rate is still on shaky ground, with no clear sign that a low may now be in place. Clients with NZD requirements should remain cautious, and consider covering at least half at current levels.
Market Forecast - Sterling Vs. Kiwi Dollar - 04/09/09
The spectre of further quantitative easing is still hanging over the pound, giving traders a green light to sell the currency. Data flow was also unsupportive, with a small upward revision in second quarter growth (up to - 0.7% from original estimate of -0.8%) being more than offset by better growth data from Europe which showed economic expansion for France and Germany over the same period.
Comparatively speaking that leaves the UK clearly lagging, and that is being reflected in the Sterling/Euro exchange rate. Meanwhile, The New Zealand dollar is still generally well supported as investors seeking more risk and yield continue to buy the currency. That trend took a knock on Tuesday as the US stock market suffered its largest one day decline in 2 months, sending the Aussie and Kiwi dollars a couple of cents lower.
However, the markets stabilised, and NZD is already clawing back those losses. Yet another tailwind for the "commodity" currencies this week has been a strong rally in gold prices, with the precious metal now challenging the key $1,000 per ounce mark.
This afternoon sees the release of key US jobs data which could have an impact on stock markets, feeding through to high yield currencies. Good data should mean stocks rally and NZD strengthens further. Shockingly bad data could cause a stock market wobble and weakness in NZD.
In short, there is no reason to think that the pound's decline is coming to an end. Buyers of NZD should strongly consider hedging any exposure now to avoid the risk of further downside.
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