PBoC Announcement Sees New Zealand Dollar Conversion Rate Slide, Societe Generale Predicts NZD, AUD Moves

Published: 20 Oct 2017 21:24 Currency Markets

new zealand dollar exchange rate today

NZD VS GBP, EUR, USD Outlook: China Devalues Yuan & New Zealand Dollar Exchange Rate Falls

The New Zealand Dollar largely held declines overnight as the People's Bank of China (PBoC) decision to devalue the Yuan continued to limit demand for commodity-driven currencies. The upcoming Business New Zealand Performance of Manufacturing Index could have an impact on NZD trading as the week continues. A move further above the 50 mark separating growth from contraction would be 'Kiwi' supportive.

Earlier...

The New Zealand Dollar posted widespread declines during the European session as the NZD to GBP, AUD and EUR exchange rates struggled following an unexpected announcement from the People’s Bank of China (PBoC).

Data published over the weekend revealed a concerning slump in Chinese imports and exports, sparking concerns about the economic strength of the Asian super power. The reports also led to the nation’s central bank altering its tight controls on the domestic currency in order to weaken it and improve competitiveness in the marketplace. The impact of the move was immediate and dramatic, with emerging-market and commodity-driven currencies sliding.

Industry expert Tim Kelleher noted; ‘All the Asian currencies have been hit pretty hard. The reason China is devaluing the Yuan is to make their economy more competitive for exporters. It puts pressure on the other peripheral currencies to do similar. We probably need to see how it settles overnight. The risk is, we see further weakness in the currencies over the next 24 or 48 hours.’

A quick foreign exchange market summary before we bring you the rest of the report:

Conversion Rate ALERT: NZD Weaker VS EUR, USD, GBP Today

While the New Zealand Dollar was able to gain on a struggling Australian Dollar, the ‘Kiwi’ was trending lower against the Euro, US Dollar and Pound Sterling. The NZD/EUR exchange rate shed 1.55%, the NZD/GBP exchange rate dropped 1.1% and the NZD/USD currency pair fell by almost 1.2%.

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The New Zealand Dollar to Pound Sterling exchange rate hit a low of 0.4186

Societe Generale Forecasts its Exchange Rate Winners and Losers Today: NZD, AUD, CAD

Emerging-market currencies like the Indian Rupee (INR) and South African Rand (ZAR) also came under pressure as a result of the Chinese announcement while sliding oil prices contributed to the ‘Loonie’s downtrend. Below Societe Generale offers its perspective of the situation.

SocGen states; ‘The PBoC’s announcement of a ‘one-off’ 1.9% devaluation in the CNY’s reference rate against the Dollar is explained as being part of a shift to a more market-determined fixing regime. That looks like a move towards a ‘managed float’ that is similar to what the majority of Asian central banks operate. However, the technical changes are less eye-catching than the small devaluation which can only increase speculation that the Renminbi will now play catch-up (or catch-down) with China’s major competitors. Whether or not the PBoC intends this to be the start of a series of steps towards a more competitive currency; the domino effect to weaker commodity prices and weaker currencies across emerging market and resource exporters will be hard to stop. We still like being short NZD and CAD in G10 though the bigger moves will be in EM, and along with the Dollar, the biggest winner may be Sterling, since the UK case for higher rates is perhaps the clearest in the G10 at the moment.’

As the week continues the direction taken by the NZD to GBP, EUR and USD exchange rates may also be the result of the market’s reaction to New Zealand’s Business Performance of Manufacturing Index and second quarter retail sales report.

Forex Newsflash: NZD to EUR Exchange Rate Hits Low of 0.5899

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