Rand, NZ and Australian Dollar in Strong Gains Against British Pound
The pound sterling (GBP) is witnessing heavy blood-letting against the commodity currencies as we move through the first week of the new month.
When we talk about ‘commodity currencies’ we are referencing currencies of countries whose economies rely heavily on the export of raw materials such as gold, iron ore and oil.
Hence the Australian dollar, New Zealand dollar and South African rand are often held hostage to the same currency market dynamics.
We look at the factors driving each of the commodity currencies higher against the GBP in this article.
The following numbers confirm sterling to be under pressure at the time of publication:
- The pound to South African rand exchange rate (GBP to ZAR conversion) is 0.10 pct in the red at 18.0505.
- The pound to Australian dollar exchange rate (GBP to AUD conversion) is 0.60 pct in the red at 1.5270.
- The pound to Canadian dollar exchange rate (GBP to CAD conversion) is 1 pct lower at 1.9015.
NB: The above quotes are taken off the wholesale markets. Your bank will affix a spread at their discretion when passing on currency. However, an independent FX provider will seek to undercut your bank's offer, thereby delivering up to 5% more currency in some instances. Find out more.
Canadian Dollar Rockets as Bank of Canada Does Nothing
The CAD complex is on the rampage at the present time despite persistent warnings that 2015 will not be a positive one for the currency, as these forecasted figures show.
So what has happened?
Buying was initially sparked by some solid GDP data released on Tuesday the 3rd of March.
Data covering the fourth quarter of 2014 came in above market expectations with a 2.4% reading (predictions were for 2%) and was accompanied by upward revisions to third- and second-quarter growth to 3.2%.
The positive data has been followed 24 hours by a decision by the Bank of Canada to leave its base interest rate unchanged at 0.75% after a 25 basis point cut on January 21, 2015.
The Bank sees inflation risks as “more balanced” given the easing in financial conditions seen since January.
Above: BoC Governor Poloz.
Financial stability risks were noted to be “evolving as expected.”
“While the Bank has shied away from forward guidance, today’s statement seemed to indicate an implicit neutral bias,” says Josh Nye, Economist at RBC Economics.
Further weakening in the Canadian dollar, currently around US$0.80 rather than the $0.86 assumed in January, has also contributed to an easing in financial conditions.
The Bank noted that this easing will “mitigate the negative effects of the oil price shock” and boost growth through stronger non-energy exports and investments.
We see the events of the past two days as a sign that markets may have become unnecessarily negative on the Canadian dollar over recent months and a correction in perceptions is required.
Australian Dollar: Good Data Sinks GBPAUD
The Australian unit has successfully weathered a central bank decision and quarterly growth data that were in line with forecasts.
Australia grew 0.5% on the quarter in the final three months of 2014 compared to a slightly upgraded 0.4% in the third quarter, news that added validation to the RBA’s decision not to cut rates this week from 2.25%.
“The Aussie isn’t out of the woods however since its full year growth for all of 2014 was 2.5%, below the historical trend levels of around 3.25%. The RBA this week passed on a rate cut but left the door open to lower rates if needed over the coming months, keeping the outlook skewed dovishly and a source of weakness alive for the Aussie,” says Joe Manimbo, analyst at Western Union.
New Zealand Dollar: Better Fonterra Data
The NZ dollar is another winner as bidding for the kiwi increased after the latest Fonterra Dairy auction showed a modest 1.1% increase in the overall Dairy index.
Butter and cheese posted strong gains whilst whole milk powder eased back 1.0%.
“The NZD starts the day stronger vs the USD after the no change result from the RBA yesterday. The NZD also seems to be getting a boost from the re-rating of the commodity currencies. Our own RBNZ talk next week about interest rates with no change expected,” says a note from Tuatara Asset Management.
South African Rand Boosted by All of the Above
As mentioned, the ZAR is part of the same exchange rate complex as the AUD, NZD and CAD.
This group is clearly in demand at present and it should come as no surprise that the South African currency finds a bid.
We have however warned that the outlook for the Rand remains rather soft in 2015 so these could be good levels for those shipping money out of SA.
Indeed, John Cairns at RMB says the ZAR remains on edge:
Fears of a June rating downgrade took USD/ZAR to 11.81 yesterday and, while a more sensible view has taken us back to the mid-11.70s, the rand is looking very edgy.
“Event risk increases today and only grows through end week. Yesterday's high of 11.81/82 now offers resistance but the key level remains the 2008 high of 11.88/89 that has held so well in the past few months.”