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Hi All,

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

The start of the month (September) saw GBP/NZD slump to a fresh 12-year low last but stalled thereafter as global stock markets gave up some of their recent gains. The Kiwi showed little reaction to a government decision to extend its deposit guarantee scheme for retail investors until the end of 2011, albeit with more strict conditions. The Reserve Bank of New Zealand’s quarterly survey of business leader expectations, which showed little change in the outlook for inflation, economic growth or monetary conditions also passed largely unnoticed. However, the local Dollar did manage to capitalise on a broadly weaker Sterling on after New Zealand’s annual trade deficit narrowed to its smallest in six years in July. The deficit of NZD2.48bln against forecasts of NZD2.55bln came from a sharp slump in imports, reflecting the impact of a 15-month recession.

Mid month saw the local Dollar shrugging off initial losses after New Zealand retail sales fell unexpectedly for the second month in a row in July, backing the Central Bank’s view that the recovery from recession will be patchy. Sales declined by a deeper than expected 0.5%, posting the sharpest fall since January as consumers curbed their spending amid rising food and fuel costs. However, there was some brighter news after a separate report from the Real Estate Institute of New Zealand (REINZ) showed house prices and sales volumes rose in August on a year earlier, indicating a recovery in the domestic property market.

Last week saw the surprise news that the New Zealand economy reversed 5 straight quarters of contraction with Q2 GDP rising 0.1%q/q. Growth was driven by gains in domestic consumption and primary industries and immediately pushed analysts to review the outlook for interest rates. The markets is now pricing in an 80% chance of a 25bps hike as soon as January (up from 50% prior to the data) and this was reflected in the strength of the NZD against all its major counterparts. In contrast, Sterling has been under heavy selling pressure and hence GBP/NZD continued to tumble last week.

Current Central Bank Rates

New Zealand (Reserve Bank): 2.50% (Next meeting 29th October)
UK (Bank of England): 0.50% (Next meeting 8th October)

GBP/NZD Highs & Lows of September:

High: 2.4239
Low: 2.1953

A movement of: 10.41%

Difference this would make on £200k

High: 484,780 NZD
Low: 439,060 NZD

A difference of: 45,720 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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