Pound to NZ Dollar Exchange Rate Recovers After a Torrid Mid-Week Session, BoE Interest Rate Talk Helps

• The pound sterling to New Zealand dollar exchange rate (GBP/NZD) is 0.52 pct higher at 1.9592.
• The euro to NZ dollar exchange rate (EUR/NZD) is 0.42 pct down at 1.5671.
• The New Zealand dollar to US dollar rate (USD/NZD) is 0.25 pct lower at 0.8667.

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Why has the GBP/NZD recovered today?

At present, currency markets are proving to be sensitive to any hints at future Central Bank action on interest rate rises. As mentioned, the NZD reacted strongly when the Reserve Bank hinted at future interest rate rises.

Overnight it was sterling's turn when the Bank of England told markets they would need to bring forward their expectations for an intrest rate rise.

The impact on the GBP was notable and the outlook for the currency has turned more positive in both fundamental and technical terms.

Why has the New Zealand dollar risen lately, and what does the forecast hold?

While the actual interest rate hike was expected, it was the promise of further climbs that got NZD buyers interested.

Commenting on the forecast for the Kiwi is Kathy Lien at BK Asset Management:

"Investors are piling back into the long NZD trade because not only did the RBNZ tighten, but they said rates will need to return to a more neutral level, which reflects their commitment to additional tightening.

"NZD should extend higher on the back of the RBNZ's hawkish monetary policy stance.  A move to 87 cents for NZD/USD is likely but stronger gains should be seen versus the euro, Japanese Yen, Canadian and Australia dollars."

Wednesday: There are downside risks ahead for the NZ dollar

The market is expecting the RBNZ to announce another rate hike to 3.25% this evening. While this outcome may be viewed as NZD positive, the accompanying statement and the updated Monetary Policy Statement will be important.

A daily exchange rate forecast note from Lloyds Bank Research warns that there are downside risks to the New Zealand dollar (NZD) should the Bank indicates a pausing in the hiking cycle, or if it lowers the rate path projection. Governor Wheeler is also due to speak after the rate announcement.

"He recently showed some concern over the strength for the NZD and suggested that the Bank could intervene.  NZD TWI has pared back from the highs seen in May. However, the Governor may reiterate his discomfort towards the strength of the currency, which could further undermine NZD."

Any such moves will likely offer much needed relief for those buying New Zealand dollars in currency such as sterling, dollar or euro.

For now the Kiwi dollar remains on the front-foot

The NZ dollar has recorded session’s highest advance versus USD.

NZD/USD broke above the 21-dma (0.8538), the technicals now give bullish signals. The RBNZ will meet at 21:00 GMT and is expected to increase the official cash rate by 0.25% to 3.25% for the third consecutive month.

"The heavy drop in dairy prices, yet limited increase in volumes, give the RBNZ the opportunity to proceed with tighter policy. In Australia, AUD/USD faces thick offers pre-0.9400/09 (May resistance), the bias is positive," says a note from Swissquote Research today.

Markets today: European Equities Fall, WPP and Rolls-Royce in Focus

Euity markets in Europe fell Wednesday from six-year highs after the World Bank cut its global growth forecast; the World Bank now expects the world economy to expand 2.8% this year, down from the 3.2% forecast set in January.

The institution expects slower growth for the US, China, Russia, India and Brazil – countries which are widely viewed as the key drivers of the global economy.

The World Bank cited risks including China’s slowing property market and the geopolitical situation in Ukraine, together with the prospect of tighter global financial conditions over time.

"As such, trading across major equity markets is subdued on the whole with key European indices broadly lower as well as US equity futures.  Global stock markets are still hovering at record highs though, thanks to largesse by the European Central Bank last week, with its stimulus response sending the euro near to a four-month low at around $1.3538," says Daniel Sugarman at ETX Capital.

Looking at the main names in focus today:

Rolls-Royce has advised their order book will reduce by around 3.5% or £2.6bn this year, due to an Emirates' order cancellation that was for 70 A350 Aircraft engines.

WPP said its subsidary JWT has bought a majority stake in The Hardy Boys, a South African creative agency with annual revenue of 55 million rand.

Betfair posted a rise in profit and revenue during the 2014 fiscal year-end and said strong trading has continued into the new financial year. The company recorded pretax profit of £61.1m during the year-ending April, compared with a loss of £49.4m a year earlier.

WH Smith said that it remains confident in the outcome for the full year, after reporting a fall in quarterly sales. For the 14 week period from 2nd March to 7th June, the company reported a 2% fall in same store sales.

WTI traded near the highest price in three months amid speculation that crude inventories fell for a second week in the US. Brent was steady in London.