The Pound to New Zealand Dollar exchange rate (GBP/NZD) touched a weekly low of 1.8238 last night as it was announced that the New Zealand economy grew by the most in 3 years during the final quarter of 2012. Analysts had predicted a quarterly GDP score of 0.9%, but the actual print showed an impressive expansion of 1.5%. The yearly figure came in at 3.0%, beating forecasts of 2.3%.
The robust print, which nearly doubled the Reserve Bank of New Zealand’s 0.8% forecast, bolstered demand for the ‘Kiwi’ Dollar because it was seen to breathe life into hopes of an interest rate hike. Indeed, Mike Jones of Bank of New Zealand said:
“It looks like buoyant economic activity in New Zealand will be sustained. The Reserve Bank may have to rethink their expectation that they can hold off on rate hikes until next year”.
A large portion of the report was boosted by the Canterbury rebuild, following the devastating earthquake that struck Christchurch in 2011. Out of the 16 industries that make up the figure, 15 posted improvements during the final quarter of 2012 – many of which were yearly highs. Retail Trade improved by 2.3%, the most since March 2007. Construction grew by 1.8%, to mark 5 consecutive months of quarterly expansion. Household Consumption hit a 6-year high of 1.6%, and Business Investment increased by 2.2%.
The Pound Sterling to New Zealand Dollar exchange rate (GBP/NZD) sunk by -0.9 cents in response to the surprisingly strong GDP print. The New Zealand Dollar also grew by 0.5 cents against the US Dollar (NZD/USD), 0.3 cents against the Euro (NZD/EUR), 0.35 cents against the Canadian Dollar (NZD/CAD), 0.5 cents against the Australian Dollar (NZD/AUD), and 0.35 cents against the Japanese Yen (NZD/JPY).
The ‘Kiwi’ Dollar was also boosted by an unexpectedly upbeat Manufacturing print from its largest trade partner – China. The HSBC Chinese Flash Manufacturing PMI for March beat economists’ forecasts of 50.8, printing at an encouragingly high score of 51.7 – well above the 50.0 level that marks growth from contraction. The sturdy Chinese Manufacturing data bodes well for the New Zealand Dollar because it suggests that the Chinese dragon is still in need of New Zealand’s raw material exports.
Another event that went in the New Zealand Dollar’s favour was the Federal Open Market Committee Rate Decision, which saw the Federal Reserve maintain its current record low 0.25% benchmark interest rate and, more importantly, indicated that the Fed’s expansive $85 billion a month stimulus programme would continue running throughout 2013. The US Central Bank predicted that the Unemployment Rate will fall to 7.3%-7.5%, but forecast domestic growth to be slightly lower at 2.3%-2.8%, compared to previous projections of 2.3%-3.0%. The FOMC statement said:
“Labour market conditions have shown signs of improvement in recent months but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy has become somewhat more restrictive”.
It was noted that several members were concerned about the long-term dangers of the bond-buying programme, but only one member actively voted for a slowdown in quantitative easing and the risk-boosting QE3 scheme looks set to stay in place for the remainder of the year.
In the UK the latest Bank of England Minutes report suggested that further asset purchases were unlikely due to the unwanted inflationary implications, and the Chancellor’s 2013 budget statement did not feature an upgrade to the BoE’s target of 2.0% Consumer Price Index, as some had expected it to. The news increased support for the Pound, but Sterling’s gains were eradicated by the end of the day in response to the strong New Zealand GDP report.
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