on September 9, 2014

On Tuesday morning Bank of England Governor Mark Carney gave a speech in which he intimated that a spring-time rate hike could be on the horizon. He also made a very clear stance on Scottish independence, arguing that if the Nationalists win they should not be allowed the Pound. The immediate effect of this hawkish speech was a positive uptrend for the Pound versus the majority of its major competitors.

The Pound Sterling to New Zealand Dollar exchange rate is currently trending in the region of 1.9520.

A poll on the Scottish referendum revealed a shocking result on Monday and Sterling suffered accordingly. The latest YouGov poll revealed that the lead had changed in favour of the Nationalists by a margin of 51%. Having had a 22% pro-unionists lead only a month ago the dramatic change spooked investors to such an extent that the Pound hit fresh lows against nearly all of its competitors. Former British Prime Minister Gordon Brown has since attempted to swing momentum back in favour of the Unionists by offering the Scottish parliament more power to deal with their domestic affairs.

The New Zealand Dollar was hit hard on Monday after global commodity prices were dashed following a less-than-ideal Chinese imports figure. Yearly Chinese Imports contracted by -2.4% in August despite having been forecast to have grown by 3.0%. The lack of Chinese demand for raw materials saw crude oil drop to its lowest level in over a year. Given that New-Zealand is a commodity-based economy the effect, coupled with the recent collapse of global milk prices, has seen the ‘Kiwi’ (NZD) plummet across the board.

The Pound Sterling to New Zealand Dollar exchange rate has hit a low today of 1.9549.

Despite the Scottish bid for independence still featuring heavily in the media the initial shock seems to have subsided for investors at least.

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Tuesday has seen Sterling gather a little momentum after Bank of England Governor Mark Carney made a speech at the TUC Congress in Liverpool in which he intimated that a rate increase is likely in early 2015. Perhaps more importantly, in terms of current affairs, was his stance on the Scottish bid for independence and their hopes for keeping the Pound. A hawkish Carney said that an independent Scotland will not be able to keep the Pound as it would be ‘incompatible with sovereignty’. His forthright comments will be well received by pro-unionists but will act as a major blow to Scottish Prime Minister Alex Salmond, who has promised that an independent Scotland would be allowed to keep the Pound.

Meanwhile the ‘Kiwi’ has continued Monday’s sufferings from the commodity price cut and is struggling against nearly all of its major peers. ‘Kiwi’ problems haven’t been helped by a lack of domestic data on Tuesday.

The New Zealand Dollar is likely to continue to trend lower as the US Dollar continues on its bullish run. Recent data from both China and the US suggests that supply has seriously overestimated demand for raw materials, and that will have a lasting, damaging effect on the New Zealand economy.

The Pound to New Zealand Dollar exchange rate has reached a high today of 1.9554.

UPDATE

The British Pound to New Zealand Dollar exchange rate was trending around 1.9528 on Wednesday as investors adopted cautious positions ahead of the Reserve Bank of New Zealands interest rate decision.

A lack of economic reports for either the UK or New Zealand did limit GBP/NZD movement overnight, but a surprising decision from the RBNZ could generate GBP/NZD volatility.

The central bank is expected to leave interest rates on hold at 3.5% but may give some guidence regarding when they intend to begin raising borrowing costs again.

If the RBNZ attempts to talk down the New Zealand Dollar during is interest rate announcement, the GBP/NZD exchange rate could advance.

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Ollie Carpenter

Ollie Carpenter is a currency expert who provides specialist advice regarding foreign exchange risk management.