Improving global economic sentiment continues to raise demand for kiwi assets, boosting the NZ currency vs the pound

The kiwi advanced over three and a half cents (1.6%) against the pound yesterday as investors showed renewed enthusiasm for risky assets.

• Rising commodity-prices and stronger-than-expected corporate earnings in the US have contributed to continued demand for higher-yielding currencies.
  
• In addition, investors are now pricing in that New Zealand’s central bank is likely to drop its monetary- easing bias at its meeting next week as economic data point to improvement.
  
• Although there has been speculation that the RBNZ has expressed concern that the strength of the kiwi is frustrating economic recovery, strong data has investors questioning whether the central bank can keep interest rates on hold until the middle of next year.
  
• In trading this morning, the New Zealand dollar has capped its gains, with the price currently hovering just above 2.17.

Aussie resumes its climb against the pound, but has capped gains this morning

The aussie dollar continued its upward trend yesterday, pushing on nearly one percent against the pound following bullish words from an RBA official.

• The Australian dollar rose as a Reserve Bank of Australia official said a move to “more normal” interest rates was appropriate, indicating that the yield gap may widen further.
  
• Philip Lowe, assistant governor of the RBA, also mentioned at the conference in Sydney that it was “appropriate” to remove monetary stimulus as the economy improves boosting demand for higher-yielding assets.
  
• The Australian currency also traded strongly during the Asian session with demand high as both the Nikkei and Shanghai Composite indices traded strongly.
  
• The RBA minutes from their most recent policy meeting, released early this morning, had a hawkish tone, which reinforced views of a steep interest rate hike next month.
  
• However, the aussie, which has broadly strengthened in response, is currently trading just marginally higher against the pound, with the price currently around 1.7650.

Euro pushes higher but finds strong resistence at $1.50

The single currency resumed its climb against the dollar in trading yesterday, supported by rising confidence in the global recovery, closing the day up 0.4%.

• The euro hovered just below the psychologically important 1.50 level as the US dollar remained under selling pressure on expectations that US interest rates will remain pinned at record lows well into 2010.
  
• The single currency also found support as some investors speculated finance ministers from the 16-nation region meeting in Luxembourg would focus on the currency’s strength.
  
• The dollar came under further pressure as the continued confidence over the prospects of a global economic recovery were reaffirmed as the Dow Jones opened up over 10,000, keeping haven demand for the dollar in check.
  
• Late in the afternoon, the Fed added to the greenback’s woes after stating that it has been testing its reverse repurchase agreement tool but is not about to use it, suggesting that US monetary policy is not set to tighten just yet.

Pound reached over $1.64 yesterday, but has slipped half a cent in trading this morning

Having traded in the red during the morning session, the pound rebounded back over $1.64, climbing for the fifth consecutive day and reaching a near one-month high of $1.6422.

• The pound initially fell against the dollar, relinquishing last week’s gains after the Sunday Times said Bank of England policy maker Adam Posen may support an extension of the central bank’s asset-purchase programme.
  
• Posen added that he was “not worried about overshooting inflation right now,” which many analysts have said will become an issue as the economy begins to grow.
  
• Last week, following the words of Mr Fisher, the market moved to discount a scenario where it was more likely that asset purchases would be paused. However, these comments suggest that the question of QE is still a finely balanced decision.
  
• Sterling was able to reverse its losses in the afternoon, however, after the US markets opened strongly, with Dow Jones edging over 10,000, supporting risk appetite in the market.
  
• The dollar has advanced in trading this morning with markets awaiting Producer Price Index data from the US, released today at 13:30BST.

Having held steady in trading yesterday, the pound has slipped back this morning as equity markets stumble

Sterling suffered early losses against the euro yesterday after a BoE member hinted that the QE programme should be extended, but the pound recovered to close the day on level footing.

• Adam Posen stated that the central bank should continue its quantitative easing programme as the financial system has yet to show signs of a sustained recovery.
  
• He added that he was unconcerned about the possibility of further monetary stimulus risking a rise in inflation.
  
• His comments appeared to eclipse positive house price data from property website Rightmove, which showed that asking prices for homes in England and Wales were up on an annual basis for the first time in more than a year in October.
  
• Posen’s dovish remarks contrast with those of fellow MPC member, Paul Fisher, who last week suggested that the BoE may be considering drawing its QE programme to a close.
  
• However, the UK currency rallied strongly in the afternoon, buoyed by surging equity markets, which took their lead from positive US corporate earnings.

Sterling traded strongly at the end of last week against the kiwi but has slipped back sharply this morning

Sterling managed to close last week at a near two-week high of 2.2056 against kiwi, as the UK currency continued to build on support from a BoE official.

• The ailing pound managed to build on Thursday’s gains, rallying a further 1.2% against the kiwi on Friday, in the wake of a Bank of England policy maker signaling satisfaction with the impact of the central bank's quantitative-easing strategy.
  
• Investors took the opportunity to take strong profits that had been built up earlier last week, taking the sterling / kiwi price back over 2.20.
  
• However, analysts warned that the fundamentals for the pound are still negative, with interest rate differentials favoring high-yielding currencies.
  
• This week's minutes of the Bank of England meeting may also reinforce the fragile nature of the economic recovery, and the likelihood of rates remaining at this low level for some time.
  
• Indeed in trading this morning, the pound has relinquished much of the ground it had recovered, already two cents down on the day as confidence remains high in the New Zealand economy.

Profit taking ahead of the weekend allowed the pound to make further ground against the aussie on Friday

Sterling maintained its rally as investors continued to lock in profits ahead of the weekend, with the price closing the day at 1.7839.

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• Having climbed to multi-year highs against the pound earlier last week, positive comments from members of the BoE concerning the quantitative easing programme triggered an opportunity amongst investors to take profit, driving the price higher.
  
• Comments on Friday were made that stated the asset purchase scheme is having its desired effect on the UK economy, dulling concerns about the possibility of a further expansion.
  
• There was also a slight pull back in demand for the higher-yielding aussie following a weak earnings report from the Bank of America, which gave investors further cause to cash profits.
  
• This morning, traders have resumed aussie buying, with analysts noting that despite some disappointing US corporate earnings, the market remains positive and high-yielders are still on a rising trend.

The single currency slipped back on Friday following weak Bank of America earnings

The US currency snapped a four-day losing streak against the euro, rising from a 14-month low, as investors cautioned their risk activity following further corporate earnings reports.

• The dollar strengthened as Bank of America earnings fell short of expectations, sparking profit taking in the euro, as well as higher-yielding currencies.
  
• The Bank reported losses of $1 billion in the third quarter, which sent equity markets down having rallied on the more positive earnings of other major US banks and corporations earlier in the week.
  
• This report aided the dollar, strengthening haven appeal and bringing the US currency up from multi-month lows against the euro.
  
• In addition, the greenback found support as data showed that US consumer sentiment eased in October, disappointing market expectations.
  
• One analyst stated that if the pound can bounce, then the markets must be wary that the dollar can also. The bounce in the UK currency increases the risk of a broad bounce in the dollar, even if it may only be a short- term reprieve.

The pound made further ground against the US dollar on Friday, buoyed by positive market sentiment

Sterling extended sharp gains against the dollar, as traders cut short pound positions after many reckoned earlier bets against the currency were overdone.

• Sterling found support following further upbeat comments from a BoE member concerning the quantitative easing programme.
  
• Sterling reached up to a three-week high against the dollar, peaking just below 1.64 before closing the week at $1.6353.
  
• Initially sterling trimmed its position after sterling/dollar stop-loss orders were triggered at $1.6300, but some analysts noted that the pound would continue to be supported as investors had taken up fresh long positions in sterling and were willing to hold onto them.
  
• Sterling also found support from recent M&A talk, with Qatar’s sovereign wealth fund planning a renewed offer for the supermarket chain J Sainsbury.
  
• Sentiment towards the US currency remained weak as optimism about the global economic outlook, buoyed by a string of strong US corporate results, turned people away from the greenback in favour of perceived riskier currencies.

Sterling continued to rally at the end of last week, but has relinquished gains in trading this morning

Sterling’s rally against the euro persisted on Friday, albeit with slightly less momentum, with the price closing the week at 1.0971, up 0.8% on the day.

• Sterling’s volatile run continued with a modest climb at the end of last week, as investors squeezed what more they could out of a rally that is expected to fade.
  
• Comments from BoE member Paul Fisher breathed some life into the pound, which has come under heavy pressure in recent weeks, when he stated that the quantitative easing programme is having its desired effect.
  
• His remarks built on those of Charles Bean earlier in the week and were seen as a departure from the Bank’s hitherto-drab assessments of the UK recovery and relaxed opinion of sterling’s decline.
  
• Investors reacted positively to the words, feeling that they may have been too quick to price in a further extension of QE into the market.
  
• In trading this morning however, sterling has slipped back, currently hovering just above 1.09, as investors resume selling the UK currency after another BoE member this time spoke of the need to continue the asset purchase programme.