Update: GBP/NZD Exchange Rate Softens Amid Strengthening Risk Appetite
Despite US inflation data proving stronger than forecast the Pound to New Zealand Dollar (GBP/NZD) exchange rate was unable to find any particular traction on Tuesday.
A prevalent sense of market risk appetite kept the New Zealand Dollar (NZD) on a stronger footing against its rivals throughout the day, even as the odds of further monetary tightening from the Federal Reserve increased.
Meanwhile, the Pound (GBP) struggled to hold onto any particular positivity as markets braced for Wednesday’s raft of UK production and growth data.
Easing Trade War Fears Benefit New Zealand Dollar Exchange Rates
As Chinese president Xi Jinping took a softer tone on trade, suggesting a greater willingness to compromise, the Pound to New Zealand Dollar (GBP/NZD) exchange rate has come under fresh pressure.
The comments boosted hopes that the US and China might still avoid a full-blown trade war, to the relief of the risk-sensitive New Zealand Dollar (NZD).
In the wake of improved NZIER business confidence and capacity utilisation indexes, the mood towards the ‘Kiwi’ has generally picked up, in spite of lingering investor jitters over the fraught outlook for global trade.
A softer US Dollar (USD) has also helped to shore up NZD exchange rates in recent days.
Hawkish BoE Comments Limit GBP/NZD Exchange Rate Losses
In spite of last week’s weaker-than-forecast raft of UK PMIs the GBP/NZD exchange rate has been able to climb back from its fortnightly lows.
Comments from Bank of England (BoE) policymaker Ian McCafferty encouraged the Pound (GBP) to recover some of its ground on Tuesday.
While McCafferty has long been known as one of the more hawkish members of the Monetary Policy Committee (MPC) investors still greeted his comment that the central bank ‘shouldn’t dally when it comes to tightening policy modestly’.
This suggests that a May interest rate hike remains a strong possibility, providing other BoE policymakers adopt a similarly optimistic outlook on the domestic economy.
Even so, the GBP/NZD exchange rate struggled to return to a positive footing thanks to the more risk-hungry mood of markets.
GBP/NZD Exchange Rate Losses Forecast on Weaker UK GDP Estimate
Further downside pressure could well be in store for the GBP/NZD exchange rate on Wednesday as investors react to the latest NIESR gross domestic product (GDP) estimate for the UK.
Growth is forecast to have softened to 0.3% in the three months to March, a dip that appears in line with the weaker nature of the recent UK PMIs.
A fresh loss of momentum for the UK economy would give investors reason to sell out of the Pound, given the high degree of Brexit-based uncertainty that still hangs over the domestic outlook.
However, as forecasts point towards an uptick in manufacturing and industrial production on the year any GBP weakness could still prove limited in the near term.
Any narrowing of February’s visible trade deficit is likely to give the GBP/NZD exchange rate a boost, meanwhile.
Signs of Softer NZ Inflation Expected to Limit New Zealand Dollar Demand
Another contraction of the ANZ truckometer in March could offer the GBP/NZD exchange rate a solid rallying point overnight.
With signs of inflationary pressure within the New Zealand economy still lacking the case for any imminent return to hawkishness from the Reserve Bank of New Zealand (RBNZ) appears weak.
Unless card spending figures come in better than forecast later in the week the mood towards NZD is likely to deteriorate once again, with confidence in the underlying strength of the domestic economy still lacklustre.
If global trade tensions continue to ease, however, this could keep the GBP/NZD exchange rate on the back foot ahead of the weekend.