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Hi All,

Here is an update of what’s been happening in the Currency Markets throughout October with the Kiwi Dollar.

NBNZ (National Bank of New Zealand) Business Confidence continued its climb from May this year with 49.1% expecting improved conditions going forward. Such robust levels have not been observed in the last decade - since the Asian Economic Crisis took hold of the region. Meanwhile, new Building Consents remained low (1.7%) despite being the highest monthly figure in a year.

The respected NZIER (New Zealand Institute of Economic Research) quarterly survey of business confidence jumped to its highest level in a decade in Q3 as a net 36% of firms now expect general business conditions to improve in the next 6 months, reversing the previous surveys net 25% of respondents expecting conditions to worsen. The survey was not all rosy as employment and investment intentions still remain mired in negative territory. The recent improvement in business confidence is, as yet, not being translated into real activity and may be reflecting relief that the worst is over more than anything else.

In October Retail Sales (+1.1% m/m) beat market expectations and reinforced the view that the RBNZ (Reserve Bank of New Zealand) will have to start raising rates in Q1 2010. Core retail sales, excluding autos, rose by 1.2% as the warmest August on record fuelled consumer purchases of clothing and soft goods. Consumer Prices (+1.3% q/q, annualised) also added weight to tightening expectations showing inflation has not moderated as expected; the latest increased driven by higher food prices, government charges and airfares.

In good news for the general economy both permanent/long-term migrants (+17k y/y)and visitor arrivals (+9.3% y/y) recorded strong growth in September. The net gain in permanent migrants was the highest annual rise in 5 years and looks to be stabilizing after tighter immigration rules and the global financial crisis drove more New Zealanders overseas. Short-term arrivals recorded the largest monthly gain since April 2006, led by visitors from Australia and the US. The RBNZ has cited recent strong migration as a factor for improvements in the property market and domestic demand, however, consumers remain cautious as the country battles to emerge from recession as seen in a fall in Credit Card Spending (-1.0% m/m) that has been reined back due high interest rates and a reluctance to incur discretionary debt.

As expected the RBNZ left rates on hold at 2.5% last week and Governor Bollard issued an unexpectedly dovish statement that had market traders paring back expectations of a rate rise as early as January. Bollard still sees ‘significant vulnerabilities and challenges’ for the economy and indeed does not expect to have to raise rates before July 2010; despite these comments the market is still pricing March as the month for the first hike towards a more neutral policy. New Dwelling Consents (+3.3% m/m) gave further evidence of stabilisation in the housing market and recorded an increase for the 3rd straight month.

This week employment data will be the main event on the domestic front.

Current Central Bank Rates:

New Zealand (Reserve Bank): 2.50% (Next meeting 10th December)
UK (Bank of England): 0.50% (Next meeting 5th November)

GBP/NZD Highs & Lows of October:

High: 2.2974
Low: 2.1295

A movement of: 7.88%

Difference this would make on £200k

High: 459,480 NZD
Low: 425,900 NZD

A difference of: 33,580 NZD

Whilst FX isn't the most thrilling of subjects, the sooner you begin to think about your money transfers, the more likely you are to make your money go further.


Jon Sermon
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