Currency - GBP / New Zealand Dollar

Standard and Poor’s the credit rating agency warned that New Zealand was among the countries most vulnerable to the effects of global financial shocks as their financial system relies heavily on overseas markets for funding. Also their export market may suffer if their main markets shrink as the global demand on commodities ebbs. The big move into safe havens such as Gold, Swiss Francs and US Treasuries triggered by the US sovereign credit rating downgrade saw NZD sell off dramatically. We’ve mentioned before that NZD buyers might eventually get a bite at better exchange rates if global economic risks grew and that was highlighted most definitely at the start of this week. In response Prime Minister John Key said on Tuesday that New Zealand was in better shape to deal with the turmoil than it had been before the credit crunch 2 years ago.
The protracted sell-off in stock markets over the last 2 weeks saw a corresponding weakening of the NZD. GBPNZD quickly gained last week and peaked overnight Monday into Tuesday morning at the height of sell off in Asian equities and reaction to S&P downgrade of US sovereign credit rating - temporarily breaking through 2.00 and reaching 2.04. Technically we’ve not posted a daily close above 2.00 yet and so for those of you wishing to take advantage of this 15 cent rally orders around 1.9800 are recommended for a portion of your requirement with potentially another tranche between 2.00-2.02
On the downside we could test down towards 1.9200 (20 day moving average), by way of 1.9350 (the weekly low) and potentially down to test the break of longer term down trend below 1.90. That said we’ve closed above that down trend for more than 3 days and technically we are into a consolidative phase ahead of a new trend (yet to be established)
It’s a big week for UK data next week with the MPC Minutes or the last Bank of England interest rate meeting, UK retail sales, and also UK inflation figures all coming up - Mervyn King is still banging the drum on lower inflation and lowered growth and inflation expectations going forward. So the risks are poor UK data seeing GBP fall, but on the flip side if concerns over Europe and US growth continue, and if there are further credit ratings cut, then stock markets will sell off further and the NZD will weaken.
The only NZ domestic data is out Tuesday with quarterly Producer Price index but unless it’s considerably different to the expected 1.7% consensus, it won’t influence the larger forces at work on NZD.