New Zealand Dollar strengthens on positive Euro announcement

NEW ZEALAND DOLLAR REVIEW | Kiwi rallies after ECB says it will do whatever it takes to preserve the Euro. Meanwhile, Big Mac Index suggests the currency is undervalued



THE New Zealand Dollar rallied towards the end of the week after European Central Bank president Mario Draghi was cited as saying that within their mandate the ECB would do whatever it takes to preserve the Euro.

The Kiwi started the week lower at 0.506 British Pounds and 0.79 US Dollars. This drop can be largely attributed to the ongoing risk aversion linked to worries over Europe.

However, a slight improvement in China’s manufacturing data has provided a buoying effect on the Kiwi.  Alex Sinton a senior dealer at ANZ was cited as saying that news that the preliminary HSBC China Manufacturing Purchasing managers Index had improvement to 49.5, up from 48.2 in June has given the New Zealand Dollar a boost.

Kiwi undervalued, according to Big Mac Index

The annual Economist magazine’s Big Mac Index was published last week and shows the New Zealand Dollar to be ten percent undervalued.

The Big Mac Index is passed on the theory of purchasing power parity. This implies that exchange rates should adjust to make the price of a basket of goods the same in each country. In this case the Economist famously uses Mc Donald’s Big Mac as the basket of goods, due to the fact that it is typically composed of common ingredients, sourced from within the country of purchase, thereby providing a common measure between nations.

The week ahead for New Zealand Dollar

Market sentiment for the week ahead shows that the New Zealand dollar may improve on speculation that the ECB and the Federal Open Market Committee will announce additional policy measures to shore up the global economy.

Furthermore China, New Zealand’s second largest trading partner, is set to release the official performance manufacturing index on Thursday.

GBP / NZD: 1.938
EUR / NZD : 1.516           
USD / NZD : 1.236
AUD / NZD : 1.293

Exchange rates as of 09:45 (GMT+1), 30 July 2012

Composed by Monique Chapman of 1st Contact :: If you want to transfer money to or from New Zealand then please register/login on our website or call us on +44 (0)808 141 2335 for a live dealing rate. Also make use of  our Rate Notifier to send you an alert when the Australian Dollar exchange rate reaches levels  our are looking for.