The only data release of any real significance out of New Zealand this week is retail sales for the month of December on Thursday, which will be watched closely as it is an early indicator for the direction of the NZ economy as consumption contributes heavily to New Zealand’s GDP. These figures are expected to show a further decline from 0% for November to -0.7% for December. However, we do not think that a decline in retail sales will be enough to buck the trend that we saw last week where the Kiwi strengthened from 2.86 (the highest since mid October 2008) to 2.76 this morning as data from the UK is expected to be worse.

To start with we have RICS house price figures from the UK on Tuesday which are expected to show a slight let-off in the housing slump with a decrease of 70% from 73% of surveyors reporting a decline in house prices in their area. This however is not expected to be enough to support the Pound as employment data on Wednesday is expected to show an increase of 10k from 78k in jobless claims which will push the unemployment rate up from 6.1% to 6.3%, further highlighting the growing problems with the UK economy.

All in all the Sterling – Kiwi cross is expected to remain one of the most volatile crosses with swings possibly taking place on the slightest of data releases. We are expecting the rate to remain below 2.8 for the short term and may possibly see it move back below 2.7 over the next few days so make sure you speak to your FCG account manager about STOPS & LIMITS to ensure you buy at the right time.