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NZ dollar pops above 50 British pence as investors downgrade UK outlook

Friday 14th November 2014

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The New Zealand dollar popped above 50 British pence, touching its highest level in almost two months, as weaker UK housing data added to concerns about the outlook for the country's economy and dented the prospect of higher interest rates.

The kiwi reached 50.31 British pence, its highest level since Sept. 17, and was trading at 50.19 pence at 8am in Wellington, from 49.86 pence at 5pm yesterday. The local currency advanced to 78.84 US cents from 78.66 cents yesterday.

Investors have dumped the British currency this week after the Bank of England downgraded its expectations for growth and inflation, and suggested interested rates aren't set to rise anytime soon. Housing data overnight showed British property values grew at their weakest pace in 18 months, contrasting with previous expectations that a buoyant property market may prompt interest rate increases.

The pound "has come under a bit of a hammering in the last few days," said Peter Cavanaugh, client advisor at Bancorp Treasury Services. "The market is disappointed because not too many months ago in a very public private briefing the Bank of England governor Mark Carney warned they may have to raise interest rates sooner than expected and the reverse appears to be the case now. The world has changed on him. He's made the mistake of providing too much forward guidance without the facts and without enough conditionality on it."

The kiwi may continue to advance against the pound if the current trends stay on track, Cavanaugh said.

The New Zealand dollar touched a fresh seven year high of 91.58 yen, its highest level since August 2007, amid speculation Japanese Prime Minister Shinzo Abe may call an election next month to gain a mandate for continuing economic reform, including plans to increase the sales tax next year for a second time.

The kiwi was trading at 91.20 yen at 8am from 91.02 yen yesterday. The kiwi/yen cross rate peaked at 97.78 yen in July 2007, according to Reuters data. It is unlikely to reach those elevated levels in this cycle as both the yen and the kiwi are expected to depreciate against a strengthening US dollar, according to Bank of New Zealand senior market strategist Kymberly Martin.

 

The local currency advanced to 90.42 Australian cents from 90.38 cents yesterday, and was little changed at  63.19 euro cents from 63.21 cents ahead of the release of European inflation and GDP data tonight. The trade-weighted index advanced to 78.10 from 77.98 yesterday.

BusinessDesk.co.nz

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