Foreign Currency Exchange

Early last week the Kiwi gained ground against a number of major currencies, in particular the USD against very poor US Dollar sentiment. The USD’s disappointing week, principally due to problems with the mortgage providers, Fannie Mae and Freddie Mac facilitated the Kiwi gaining considerable ground within the Forex markets. However, observers should not be under the illusion that the New Zealand economy is performing well - it is more that powerhouse economies such as the US are performing so poorly that it makes currencies like the Kiwi appear to be performing better than they are.

In fact the outlook for the New Zealand economy was set back by commodity prices falling over the course of last week. With raw materials accounting for around two-thirds of the economy's exports, the New Zealand Dollar tends to weaken as commodity prices fall.

Toward the end of last week and into the beginning of this week the Pound made gains against the Kiwi off the back of falling commodity prices as well as the financial markets beginning to price in a 50% chance of a rate cut at the next interest rate meeting on 25th July. The RBNZ has a tough decision to make and it is expected to be a very close call as it battles the contrast between high inflation and weaker growth prospects, however overall expectations are for a 0.25% cut.