Last week saw the New Zealand Dollar gain slightly against a basket of major currencies benefiting from improved risk appetite. There wasn’t any major domestic data so all movement was caused by renewed interest in higher yielding currencies and therefore carry trades.

We have had some weak data out of New Zealand this morning showing retail sales have dropped from +0.3% to -0.7% (market consensus was for a 0% reading), house sales growth has hit a seven year low (6.5%, down from 7.7%), and also a negative report from the NZ institute of Economic Research showing a sharp decline in business confidence for the first quarter 2008. However, the Kiwi has not really been affected by these releases and continues to trade strongly against the Pound with the outlook for Sterling looking bearish.

We are expecting more rate cuts in the UK over the coming months so expect the GBP/NZD cross to remain low. Although the Kiwi is still very sensitive to credit market jitters, and any further bad news could cause a sell-off of higher yielding currencies and risk aversion, we expect the cross to remain dependent on the state of the global economy and risk appetite. We should see trading remaining range-bound between 2.45 and 2.52 for the time being.