Confidence in the New Zealand Dollar declined again as the latest domestic data failed to impress investors, underlining the persistent political jitters weighing on NZD exchange rates.
The Reserve Bank of New Zealand (RBNZ) inflation expectation survey for the fourth quarter proved disappointing, with the headline forecast dipping from 2.09% to 2.02%.
This suggests that domestic inflationary pressures are likely to remain relatively tepid over the next two years, giving the central bank less incentive to return to a hawkish outlook.
Further downside pressure was in store for the ‘Kiwi’ as October’s ANZ commodity price index showed a contraction on the month, eroding hopes for an imminent acceleration in inflationary pressure.
With investors already inclined to sell out of the New Zealand Dollar, this weaker data gave the GBP NZD exchange rate a boost at the start of the week.
Mixed BoE Minutes Leave Pound Sterling (GBP) Exchange Rate Fluctuating
Although Sterling plummeted last Thursday, the mood towards the Pound improved in the wake of a better-than-expected trio of October PMIs for the UK.
The upbeat data inspired hopes that the UK economy is set to strengthen in the fourth quarter and helped diminish the initial negative impact of the Bank of England’s (BoE) more dovish meeting minutes.
While the BoE suggested that further interest rate hikes are likely to be a more gradual process, the prospect of further tightening nevertheless remains on the table.
With markets still hopeful that Brexit negotiations will be able to proceed to their second phase before the end of the year, GBP exchange rates have begun recovering from their worst levels.
Dovish RBNZ Could Extend GBP NZD Exchange Rate Gains
NZD exchange rates are likely to remain under pressure ahead of the RBNZ’s November policy announcement on Wednesday.
While no change in monetary policy is expected at this juncture, the central bank’s tone could shift in the wake of recent underwhelming data.
If it appears that the RBNZ will remain on hold for the foreseeable future then the appeal of the New Zealand Dollar is unlikely to significantly recover in the near term. Political developments also look set to remain a significant headwind for the New Zealand Dollar for some time to come.
That being said, if retail card spending is found to have picked back up on the month in October this could limit the downside potential of the ‘Kiwi’.
Pound (GBP) Exchange Rate Volatility Forecast on Latest UK GDP Estimate
Fresh UK data will be somewhat limited this week, leaving the Pound lacking in particular momentum in the short term.
However, Friday’s raft of trade and production data could see the GBP NZD exchange rate strengthen further if the economy continues to largely shrug off the negative impact of Brexit.
Any weakness, on the other hand, is likely to encourage investors to sell out of Sterling once again thanks to the persistent uncertainty still hanging over the domestic outlook.
Focus will also fall on the NIESR gross domestic product estimate for the three months to October, which could point towards a further uptick in growth.