New Zealand Dollar Loss Reveals SNB Holding as GBP/NZD Range Persists

“If there were to be an excessive appreciation of the Swiss franc, we would be prepared to purchase foreign currency. If the Swiss franc were to weaken, however, we would also consider selling foreign currency,” - SNB Chairman Thomas Jordan. 

Pine timber being exported from Wellington, New Zealand. Photo by James Anderson, World Resources Institute.

The New Zealand Dollar has been sold heavily thus far in the week alongside Sterling and there is evidence that some of the resulting losses reflect asset sales by the Swiss National Bank (SNB), although none of this has done anything to disrupt the sideways trend toward consolidation in GBP/NZD. 

Pound Sterling was the biggest faller among major currencies during the week to Wednesday but New Zealand’s Dollar was hard on its heels and there have been strong indications that the breadth and depth of declines in both had something to do with the SNB.

While each remained under pressure on Wednesday and seemingly for other reasons, the heavier losses racked up in Tuesday’s trading session were accompanied by strong and sustained co-movements between the U.S. Dollar and Swiss Franc facing exchange rates of both currencies. 

With this coming amid strength in the U.S. Dollar and soon after the SNB said it would sell reserves in order to keep the low-yielding Franc from sustaining further inflationary losses, it would appear that at least some of this week’s Kiwi Dollar decline was the result of SNB intervention.

“If there were to be an excessive appreciation of the Swiss franc, we would be prepared to purchase foreign currency. If the Swiss franc were to weaken, however, we would also consider selling foreign currency,” SNB Chairman Thomas Jordan had said on June 16. 

Above: Selected exchange rates on Tuesday, 28 June. Shows co-movements between Dollar and Swiss Franc facing exchange rates. Source: Netdania Markets. Click image for closer inspection.

This is news for the New Zealand Dollar given that it has not been separately itemised as a reserve holding at the SNB, although the same developments were also observed in relation to the Australian Dollar, Swedish Krona, Euro, Japanese Yen and Canadian Dollar.

Readers can get more of that story here. 

“The NZD looks set to remain fairly range-bound, bouncing around with the general vibe of global sentiment,” says David Croy, a strategist at ANZ. 

“NZD/GBP is range-trading within familiar ranges. There are no obvious points of differentiation and it’s the USD doing most of the shaking and grooving,” Croy and colleagues also said on Wednesday. 

Sterling, the Kiwi and many other currencies have sustained heavy losses relative to the U.S. Dollar in recent months and during June these have been significant enough in each part to keep the GBP/NZD and GBP/AUD exchange rates locked within a sideways trend or consolidation range.  

Above: Pound to New Zealand Dollar rate shown at 4-hour intervals with Fibonacci retracements of June rebound indicating possible areas of short-term technical support for Sterling. Click image for closer inspection.

“NZD/USD broke below a two-week old contracting range, and targets 0.6200 next,” says Imre Speizer, head of NZ strategy at Westpac.  

“If that broke, we’d then target the 0.6000 area, which was an area of much congestion in early 2020. The main drivers of NZD/USD at present are global risk sentiment (proxied by equity prices, for example) and the US dollar (in turn driven by both risk sentiment and yield spreads),” Speizer adds. 

The Pound to New Zealand Dollar rate tends to closely reflect the relative performance of Sterling and the Kiwi when each is measured against the U.S. Dollar, and the U.S. Dollar has bounced back from last week’s losses with vengeance in recent days. 

U.S. Dollar gains had taken a heavier toll on Sterling by Wednesday and in the process helped pull the Pound to New Zealand Dollar rate back down from near its June highs around 1.96 while leaving it on course for the middle of a rough 1.9250 to 1.9630 June range during the mid-week session.

“The shift in sentiment to increased risk aversion provided a boost to the greenback and checked the earlier climb of commodity currencies, with the NZD at the bottom of the overnight G10 currency standings,” says Mark Smith, a senior economist at ASB Bank. 

Above: NZD/USD at weekly intervals with Fibonacci retracements of 2020 recovery indicating medium-term areas of technical support for the Kiwi, while featured alongside GBP/USD. Click image for closer inspection.

“Mounting global recession fears should keep NZD/USD capped in the near term and push the NZD towards its key 0.62 USD support levels,” Smith and colleagues said on Wednesday. 

Much about the outlook for GBP/NZD in the days ahead is hinged on whether NZD/USD can hold an important layer of technical supports that litter the charts between 0.6191 and 0.6231, as any break below here would potentially lift GBP/NZD if it leads the Kiwi’s losses to snowball. 

That is in turn likely to be determined at least in part by market appetite for the U.S. Dollar, given there is little of consequence in New Zealand’s economic calendar for the days ahead, which will also see the release of important inflation figures in the U.S.

"AUD/USD and NZD/USD are down near recent cyclical lows on heightened financial market risk aversion,” says Elias Haddad, a senior currency strategist at Commonwealth Bank of Australia, in reference to Wednesday’s price action. 

"In New Zealand, attention turns to a speech by RBNZ Chief Economist Paul Conway on housing (7:30pm New York) and the ANZ June business survey (9:00pm New York),” Haddad and colleagues also said on Wednesday.

Above: Pound to New Zealand Dollar rate shown at daily intervals with Fibonacci retracements of 2022 fall indicating possible areas of short and medium-term technical resistance for Sterling. Click image for closer inspection.