NZ dollar touches six-month high vs British pound as BoE rate hikes pushed out

Tuesday 29th December 2015

The New Zealand dollar touched a six-month high against the British pound as investors push out expectations for a hike in UK interest rates.

The kiwi touched 46.06 British pence, and was trading at 45.98 pence at 8am in Wellington, from 45.83 pence at 5pm yesterday. The local currency was little changed at 68.42 US cents.

The pound has fallen out of favour as investors push out expectations for when the Bank of England may hike interest rates. The BoE, which has kept interest rates at 0.5 percent since early 2009, was earlier this year expected to follow the Federal Reserve in hiking interest rates however most economists now don't expect a hike until May 2016 and market pricing suggests rates could be on hold for another year. In contrast, the Reserve Bank of New Zealand is expected to keep rates on hold after cutting the benchmark this month.

"It's a continuation of the trend throughout December of a weakening pound and a strengthening kiwi. The pound has had a terrible time through the whole of December, investors have been dumping pounds in their droves," said Kevin Morgan, OMF senior dealer, foreign exchange and derivatives.

"As the market now feels more secure that the RBNZ are probably done with cuts for the time being, the kiwi has come back into favour and one of the notable features has been against the pound which has weakened considerably as UK data has deteriorated and the market is trying to second guess if and when the UK central bank will ever raise rates."

The New Zealand dollar rose to 94.35 Australian cents from 94.06 cents yesterday, and gained to 4.4385 yuan from 4.4314 yuan. It was little changed at 82.34 yen from 82.35 yen yesterday and at 62.36 euro cents from 62.32 cents.

Trading volume was lighter than usual. Last week, local financial markets closed on Thursday, and were closed Friday. This week markets will be closed for the New Year’s Day holiday on Friday.

BusinessDesk.co.nz

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