If you are planning to immigrate to New Zealand chances are you have been anxiously watching the exchange rates.  Halo Financial Director, David Johnson, looks at the reasons behind the current situation and what we can look forward to in the near future.

There are some very obvious reasons for the Sterling - New Zealand Dollar exchange rate languishing at near 25 year lows.

What is less clear is just what it is going to take to make the Pound rally enough to ease the financial pain of those migrating to New Zealand.

The reasons for NZ Dollar strength largely fall into three camps. Firstly, New Zealand has a base interest rate of 2.5% whilst the UK base rate is just 0.5% and the US, EU, Japan and almost every other industrialised country is keeping its base rate historically low in order to stimulate domestic growth. Consequently, investors can borrow money at virtually zero interest rates elsewhere and invest in Kiwi assets for a guaranteed yield advantage but they need to buy NZ Dollars to do so and that strengthens the currency. 

Secondly, the global recovery is starting on New Zealand’s doorstep in the Far East; creating a very healthy market for NZ exports as evidenced by this month’s improved dairy auction prices. And thirdly, the New Zealand economy has fared far better than equivalent western hemisphere economies during these troubled times and even though unemployment hit a 15 year high last month, most analysts would agree that unemployment lags the recovery and doesn’t alter the fact that NZ is already out of recession.

On the UK side of things, well the Great British Pound is a bit of a misnomer these days. The weakness in Sterling means it can hardly be described as "Great" but it is still British and it is certainly getting pounded. The astronomical size of UK government debt is the main concern because it will take decades for Britain to rid itself of this black hole and the cost of servicing all that debt will weigh on government spending for many years to come. That acts like a trailing anchor on growth and is perhaps one of the reasons why the UK is the only G10 country that has not yet recovered from recession.

In response to this lack of growth, the Bank of England announced a further £25 billion expansion of their cash creation program, a process which goes by the pseudonym "quantitative easing". Now that’s a case of calling a spade a "manually operated soil relocating implement" if ever I saw one.

Room for recovery

So on the face of it, it would seem utter folly to expect the Pound to strengthen against the New Zealand Dollar but we have to remember where this exchange rate was just a year ago. In October 2008, this pair was trading up around NZ$2.90. There was an unexpected spike to NZ$3.00 after the collapse of Lehman Brothers but that lasted no more than a matter of hours. Since then, we have witnessed a slide to NZ$2.13 and we have seen a grinding recovery to NZ$2.30 at the time of writing.

A fall of 77 cents followed by a bounce of just 17 cents would suggest there ought to be more room for recovery. Traders around the globe watch mathematically calculated retracement levels which suggest we ought to see NZ$2.42 and perhaps even NZ$2.51 in the months ahead. The key is not necessarily knowing when this might happen but having the resources to take advantage of such a move whenever it does occur and whether it happens on the very day you need to convert your funds or a few months before all your funds are available.

Take advantage with the right tools

At Halo Financial our role in your migration is to make sure you are aware of the market movements, are able to take advantage of advantageous exchange rate movements and have the tools at your disposal to secure the best exchange rate available within your time frame.  That exchange rate will comfortably better high street bank rates as will the level of service you will receive. So however and whenever the Pound recovers, with Halo Financial as your currency partner, you are in prime position to take advantage.  

- Halo Financial is a leading specialist provider of commercial foreign exchange services for both international business and private individuals who require foreign currency and need expert assistance in successfully managing their foreign exchange exposures. They are a partner of New Zealand Visa Bureau, an independent company specialising in helping applicants emigrate to New Zealand.

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