New Zealand dollar vs pound sterling: NZ Dollar exchange rate complex hit by uncharacteristically weak NZ data

By Gary Howes

The NZ dollar vs pound sterling exchange rate (GBP/NZD) is trading under pressure on Monday morning as traders look to book profits on strong NZ dollar rates.

Driving the fresh bout of profit-taking is the release of NZ retail sales data which underwhelmed. A look at the NZ dollar exchange rate complex (NZD) shows:

• The pound sterling to NZ dollar exchange rate (GBP-NZD) is 0.04 pct higher at 2.0020.
• The euro to NZ dollar exchange rate (EUR-NZD) is 0.19 pct higher at 1.6399.
• The NZ dollar to US dollar rate (NZD-USD) is 0.12 pct lower at 0.8361.

Note: All NZD quotes here refer to the wholesale spot market. Your bank will charge a spread at their discretion when passing on a retail rate. However, an independent FX provider is so well placed on the market that they are able to deliver you up to 5% more currency. Please learn more here.)

Pound sterling continues to dominate GBP-NZD pairing

The pound sterling to NZ dollar exchange rate (GBP-NZD) has hit the 2.0 level once again amidst a continued atmosphere of GBP strength.

"The pound continues to dominate this trading pair despite the fact that a rate increase from the RBNZ looms. Considering the RBNZ concerns about a strong currency, recent weakness in the New Zealand dollar will be welcomed by the central bank," says Sasha Nugent.

However, as today's live coverage of sterling notes, this will be an important week for GBP and risks of a downside move are growing.

The New Zealand economy came back into focus over the weekend, as the release of retail sales data saw the first disappointing figure of 2014.

"The Island nation seems to have been a shining beacon over recent months, with falling unemployment and central bank which is likely to be the first to buck the trend by actually raising rates rather than promising to keep them low for an extended time. This highlights the ‘carry trade’ prospects of the kiwi dollar, which is turn has risen to a February high in Friday," says Joshua Mahony at Alpari UK.

However, having initially rejected a key resistance level at 0.838, questions are being asked as to whether Mahony says we are likely to transition into a medium term uptrend or push lower once again.

Subsequently, the release of poor retail sales data thus comes at an opportune moment, given that this is the first disappointing tier one release of 2014.

"However, the muted response seen in the NZDUSD market so far likely reflects the fact that the release portrays a retail sector which is still growing, albeit at a somewhat lesser pace than expected. The retail sales figure is always hugely important given that it act as a barometer of both current and future expectations with regards to employment, earnings and inflation," says Mahony.

Alpari say that with the rate of retail sales typically fluctuating around parity on a regular basis, it remains to be seen whether this is enough to begin another phase of selling in the NZ dollar exchange rate complex.

Carney fights to keep UK interest rates lower for longer

Both the GBP and NZD have been benefiting of late on market assumptions that the relevant central banks will hike interest rates in coming months.

The Governor of the Bank of England was interviewed on the Andrew Marr show yesterday and gave the general public some clarity on the future of any increase to borrowing costs.  

Carney has made more of an effort that his predecessor to give investors a picture of what exactly he means by “forward guidance”, and to make sure any fears are eased by well-timed interviews and press releases.

"Yesterday’s interview on the popular Sunday morning politics show was a direct attempt at addressing the general public, and to illustrate what the markets have known for a while: interest rates will not go up any time soon, and when they do, it will be a gradual rise," says Farhan Ahmad, trader at Tradenext.

A recent report from Bloomberg shows that since Carney has taken over as Governor, the sterling has appreciated in value against a basket of 9 developed market currencies, by over 8%.  

"Despite Carney insisting rate rises are subject to marked improvements in the labour market, many in the City and Wall Street believe the UK will be the first in the developed world to raise rates," says Ahmad.