World First NZD Update – December 2010

Throughout December risk aversion featured within the financial markets. There were a few principal contributing factors; at the outset of the month the announcement of a bailout for Ireland was put in motion, however concerns were raised around potential damage to other European economies. There was a shock downgrade to New Zealand’s foreign currency sovereign credit rating, and China continued to tighten monetary policy in order to slow growth to a sustainable level.

The middle of the month saw the RBNZ keep the OCR unchanged at 3% as expected. However what was unexpected was the accompanying statement released by the RBNZ that delivered concerns that low interest rates are not stimulating growth. Subsequently NZ economic analysts moved the predicted date for the next OCR rise from March to June next year, with the suggestion that further increases thereafter will be more gradual than previously forecast.

The big data for the month was the Q3 GDP release. It was surprisingly poor and showed that GDP contracted 0.2%, which was weaker than the RBNZ, and the market expected. The set back has been attributed to a decrease in housing demand and construction, manufacturing activity and poor weather leading to reduced financial activity. All the above taken into account some optimism still remains and economic recovery is still expected to be back on track in 2011.

GBPNZD – Started the month at GBPNZD 2.080. By mid month risk aversion had put the NZD on the back foot raising the rate to GBPNZD 2.12. However the thin trading surrounding the festive season has turned that move around and at the end of the month GBPNZD is sitting at 2.000. Early in the New Year we are likely to see a small correction in Sterling’s favour as normal trading resumes.

EURNZD – Traded at EURNZD 1.75 at the start of the month and looked to continue to decline following the resurfacing of the problems in the Eurozone that featured in November. However mid month saw risk aversion push the rate back towards the EURNZD 1.80 level before spending the second part of the month descending back down again, finishing at EURNZD 1.72. As with GBPNZD seasonal trading is in part to blame for the change in direction and the New Year could herald a small correction in Euros favour.

NZDUSD – Continuing the trend on from Novembers mid 0.7’s range the NZDUSD rate has largely fluctuated between NZDUSD 0.74 and 0.76 throughout December. However seasonal trading has meant NZD has finished the year on a flourish, putting the USD on the back foot and breaking upwards of NZDUSD 0.77. Should risk aversion still feature in the early New Year we will likely see a turnaround back to the mid 0.7’s in January.

NZDZAR – The NZ Dollar has faltered a little over the past month against the Rand reversing the gains made in November. Started the month at NZDZAR 5.25 and finished the month at 5.10

World First would like to take this opportunity to wish everyone the very best for a happy 2011