Foreign Currency Exchange

The kiwi suffered from a surprise 50 basis point rate cut by the RBNZ last week. The RBNZ cut interest rates in the country by 0.5%, countering expectations for a 25 basis point rate reduction.
In addition, the kiwi declined in line with other high yielders on persistent risk aversion, triggering even heavier carry trades unwinding last week.

This week investors had another financial institution to worry about. This time it was Lehman Brothers that rattled financial markets and global equities. The US bank has gone bankrupt, struggling to find a potential suitor to rescue the firm from huge credit related losses.

The GBP/NZD cross is expected remain weak as the RBNZ look to focus on increasing growth through interest rate cuts in the sort term. However, Sterling will remain vulnerable against all of the major currencies, therefore investors should be careful on hanging on for a further increase in the rate as the Pound is expected to push down in the Medium term. Those buying NZD should take advantage of the recent spike and those selling should hold tight for some more poor UK data.