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The New Zealand dollar has traditionally been weak against the UK Pound Sterling. These favourable exchange rates make New Zealand property even cheaper for overseas investors.
 
Sterling remains strong after Producer prices
Tuesday, 16 January 2007
  • Sterling remains strong after Producer prices
  • UK inflation and German business confidence dominate the day

Market overview

Well done to Dame Helen Mirren and Jeremy Irons for their golden globes, well done to Andrew Flintoff and the boys for a win in the cricket (hurrah) at last and well done the British banks and mortgage companies for whipping fixed rate mortgages away just as they may be useful. The old saying that a banker is someone who will lend you his umbrella and then take it back just as it starts to rain, has such an air of truth about it. The mortgage move comes as UK producer prices rose, the expectation is that UK inflation (due to be announced today) may hit 3.0 percent for the first time in 11 years and these factors are also boosting the Pound. Traders are factoring in a far greater chance that interest rates will have to rise further. In addition to UK inflation numbers, we also get the German ZEW consumer sentiment index and US empire manufacturing index. All are important and so is the speech expected from Andrew Sentence, a voting member of the Bank of England’s Monetary Policy Committee. Another lively day is in the offing but news reporters are more interested in whether we all want to remain part of the United Kingdom. The oddest part of this is that Scotland has a parliament, Wales has a parliament, Northern Ireland might just get a parliament if they can agree and yet there are no plans for the most populated part of the Union, England, to have a say in its own affairs. Isn’t that unreasonable or am I a xenophobe for even thinking such a thing? Hold the press, UK inflation has hit 3 percent as expected; any higher and the Mervyn King will have to write to the Chancellor to explain his lack of control on inflation. I bet he’s quaking in his boots.

Currency - GBP - Euro

A rise in consumer confidence in Germany, whilst a minor data release in itself, may just be the catalyst that starts the recovery of the Euro against the Pound and US Dollar.  The thinking in the markets seems to be that the UK interest rate hike was a pre-emptive strike and is now fully priced into the Pound along with another hike within the first half of 2007. US interest rates are, at best, on hold and at worst, could slide through the year and yet the European Central Bank is playing games with the market in changing its message at the last meeting only to revisit the notion of interest rate hikes when they meet on 8th February.  Add to this the fact that Sterling is looking very overbought on the charts and the Euro is looking oversold on others and we may well see a dip in GBPEUR.

Currency - GBP - Canadian $

The Canadian Dollar regained some strength against the US Dollar over the last few days as the price of oil, a chief Canadian export, rebounded from the lows seen last week and as the US Dollar itself came under pressure after the surprise UK interest rate hike. Thankfully for those who are planning a move to the land of the maple leaf, Sterling is remarkably strong against both the US and Canadian Dollars and the GBPCAD exchange rate is still in a slight upward channel. However, as with other Sterling crosses, the fact that the Bank of England interest rate hike is seen as a preventive move and the future of UK interest rates is seen as perhaps one more hike and then flat, suggests that any more good news from Canada will cause an unwinding of these great GBPCAD exchange rates and a fall would be the inevitable consequence. On the horizon we have Thursday’s inward investment flows and manufacturing shipments from Canada. Both are forecast to be rather good news for the CAD and we should be wary ahead of these releases. Before that though, we have UK unemployment and wage growth which are expected to be rather good for the Pound. It is fair to conclude then that orders between now and Thursday to buy CAD may well yield the best results for some time to come.

Thought for the day

Perhaps all pleasure is only relief.
William S. Burroughs

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FX Research and Analysis undertaken by:
David Johnson - Halo Financial

 

 
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