Good Morning. Today we will have a look at where rates may go for the Antipodean currencies, Aussie Dollar (AUD) and New Zealand Dollar (NZD). First, we’ll look at where rates stand now, and a quick look at the pound, as this is the main driver of low rates for all currencies at the moment.
- GBP/EUR 1.1218
- GBP/USD 1.6486
- GBP/AUD 1.8978
- GBP/NZD 2.3234
- GBP/JPY 148.79
- GBP/CHF 1.7026
- GBP/CAD 1.7646
- GBP/ZAR 12.131
The pound erased early gains made on a rise in UK house prices and data showing a slower than expected fall in domestic inflation, as King’s statement fuelled speculation the BoE may use yet another device in its quantitative easing toolkit.
As you can see from this 3 month chart, the rate to buy NZD has been steadily dropping away. The main reason for this is Sterling weakness. We’ve had Quantitative Easing, low interest rates, and news yesterday that UK recovery is going to take much longer than first anticipated. Our interest rates are likely to remain very low for some time, whereas New Zealand’s Interest rate is currently at 2.5%, with many analysts expecting it to go up in coming months.
As our interest rate is lower, investors get less return. As more return is available on NZD, then investors sell pound to buy NZD. This weakens Sterling, and strengthens NZD, and the net result is lower exchange rates. As the interest rate differential is likely to remain low for some time, this will probably not change.
Another reason for low rates, is risk appetite. In times of turmoil, investors flock to the safe haven of the US Dollar. When we get good figures from the states signalling recovery, investors have more risk appetite, and then invest in riskier currencies such as NZD. So, as the rest of the world recovers and the UK lags behind, the pound remains weak and other currencies strengthen.
The New Zealand dollar has remained generally well bid as gold continues to flirt with the key $1,000 per ounce mark. Stock markets are also performing well, keeping investor risk appetite buoyant and supportive of high yielding currencies. Strong bank lending data from China also helped the Aussie and Kiwi dollars.
While sterling’s technical outlook against the Euro and US dollar have improved on yesterday’s bounce, the Sterling/Kiwi rate is still on shaky ground, with no clear sign that a low may now be in place. Clients with NZD requirements should remain cautious, and consider covering at least half their requirements at current levels.
In short, there is no reason to think that the pound’s decline is coming to an end. Buyers of NZD should strongly consider hedging any exposure now to avoid the risk of further downside. Open an account with us today for a free consultation on the tools we have available to help you do this.
Both NZD and AUD are commodity driven currencies, so as commodities such as gold increase in value as the world exits recession, so do the currencies, making them more expensive to purchase.
Of course the pound will recover at some point, along with exchange rates. Predicting when this will be is the hard part, but for AUD and NZD it will probably be well into 2010. If you need funds converted in the next 3 months, then you should seriously consider hedging your exposure.
Here at FCG, we can get you commercial rates that are much better than available at UK Banks. Whilst the natural inclination is to go to your local High Street bank to transfer funds abroad, this is usually a fairly expensive way of doing it. Exchange rates and commissions provided by high street banks are significantly less favourable than ours, and so the savings can be considerable.