Update: UK Concerns Still Driving GBP/NZD Exchange Rate Movement
After sliding in response to below-forecast UK-inflation data, the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate extended declines on Wednesday as the UK’s employment stats proved mixed.
The UK lost positions in the three months through September (rather than gaining 50K jobs as expected) and wage growth remained far below the rate of inflation.
New Zealand data is lacking until tomorrow and the release of the nation’s consumer confidence index.
NZD/GBP Exchange Rate Stumbles as UK Inflation Misses Forecast
In a blow for hopes of another Bank of England (BoE) interest rate hike, the October UK consumer price index fell short of forecast, and the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate weakened accordingly.
Demand for the Pound dropped off sharply as inflation clocked in at 3.0%, rather than 3.1% as markets had hoped.
This more muted inflationary data raises questions over whether price pressures have now peaked, something which would undermine the forecasts on which the BoE based its recent rate hike.
Even so, UK households remain under significant pressure as the gap between wage growth and inflation looks set to persist for some months to come.
With investors already deterred by the latest signs of turmoil within Theresa May’s cabinet, markets have seen little reason to favour the Pound so far this week.
New Zealand Dollar Exchange Rate Falls, Demand Limited by RBNZ Worries
That being said, fresh New Zealand data has been rather thin on the ground in recent days, meaning support for NZD exchange rates has remained limited.
This hampered the New Zealand Dollar’s ability to capitalise on the softening Pound and tempered GBP NZD losses.
Markets are still less than convinced by the prospects of the centre-left coalition government and its plans for the Reserve Bank of New Zealand (RBNZ).
With the appointment of a new Governor looming, there are worries that the central bank could see a shift in its policy outlook, potentially moving back towards a dovish bias.
A prospective alteration to the RBNZ’s mandate has also limited the appeal of the New Zealand Dollar, with investors nervous of the central bank being tasked with stimulating employment in addition to its inflation target.
GBP NZD Exchange Rate Vulnerable to UK Wage Growth Disappointment
Further downside pressure could be in store for the GBP NZD exchange rate, with the release of the latest UK wage growth data on Wednesday.
Both policymakers and investors will be hoping to see some acceleration in average weekly earnings in the three months to September, even though the figure is still likely to significantly trail inflation.
As the BoE has maintained a more optimistic view of wage growth in coming months, any failure to rise here could dent the Pound.
Given that some members of the Monetary Policy Committee (MPC) have already expressed concerns over the relative stagnation of household earnings, this could further undermine the case for higher interest rates.
Political developments are also likely to remain a major headwind for Sterling, with focus turning towards Parliament’s debate on the EU withdrawal bill and its many proposed amendments.
Higher Producer Prices Could Boost New Zealand Dollar Exchange Rates
Support for the New Zealand Dollar may improve if ANZ consumer confidence shows a rebound on the month, reversing at least some of October’s contraction.
Signs of rising inflationary pressure in the third quarter producer price index data could also help to boost NZD exchange rates on Thursday.
However, the antipodean currency is still likely to lack major traction against its rivals so long as worries over the future shape of the RBNZ and nerves over the coalition government persist.
Any general improvement in market risk appetite may limit the downside vulnerability of the ‘Kiwi’, however, as confidence in the US Dollar falters.
Data Affecting This Week’s GBP/NZD Exchange Rate Forecast
15th November 09:30 UK Average Weekly Earnings (3M/YoY) (SEP)
16th November 00:00 NZ ANZ Consumer Confidence Index (NOV)
16th November 14:00 UK Bank of England Governor Mark Carney Speaks
16th November 21:30 NZ Manufacturing PMI (OCT)
16th November 21:45 NZ Producer Price Index Output (QoQ) (3Q)
16th November 21:45 NZ Producer Price Index Input (QoQ) (3Q)