After the tragic attacks in Brussels roiled markets, safe-haven demand saw the New Zealand Dollar soften versus most of its major peers. The GBP/NZD conversion rate remains weak, however, as the British asset suffers as a result of rising ‘Brexit’ concerns.
NZD Declines despite PBoC Intervention
Last week demand for the New Zealand Dollar cooled after traders continued to digest the Reserve Bank of New Zealand’s (RBNZ) surprise move to cut the overnight cash rate. However, the ‘Kiwi’ (NZD) enjoyed a significant boost towards the close of the week after Federal Reserve Chairwoman Janet Yellen stated that external risks will likely cause the Federal Open Market Committee (FOMC) to delay a benchmark rate hike.
This week has seen a reversal of ‘Kiwi’ gains, however, after several high-ranking Fed officials dismissed the notion of long-term delays to a rate hike. Many analysts also believe that Yellen was attempting to jawbone the ‘Greenback’ and predict that domestic data results will pressure the Fed into tightening policy irrespective of the US Dollar’s trade weighting.
On Tuesday the New Zealand Dollar declined versus most of its major peers after terrorist attacks in Brussels caused traders to flock to safe-haven assets. Even intervention from the People’s Bank of China (PBoC) to stabilise the Yuan wasn’t enough to offset risk-off trade.
GBP Dives as Brussels Attacks Bolster ‘Brexit’ Potential
The British Pound was hardest hit by the tragic events which unfolded in Brussels on Tuesday morning. This was due to concerns that those campaigning for the UK to leave the European Union will use these events to claim that migrants and refugees pose a threat to national security. If campaigners are able to scare voters in this way, tighter border controls will be a draw for those currently undecided on which way to vote.
British ecostats also oiled the Sterling slide. Of particular disappointment was February’s Consumer Price Index data. On the year, British inflation held at 0.3% despite forecasts of a rise to 0.4%. Additionally, monthly inflation saw 0.2% growth rather than the 0.4% market consensus. UK Public Sector data results were comparatively positive but this wasn’t enough to offset losses from political uncertainty and continued weak inflationary growth.
The Pound softened across the board on Tuesday, with the GBP/NZD conversion rate cooling by around -1.0%.
GBP/NZD Forecast: Market Sentiment to Dictate Movement
Influential British and New Zealand data will be somewhat thin-on-the ground for the remainder of this holiday-week. Wednesday’s New Zealand trade data and Thursday’s UK Retail Sales data have the potential to provoke GBP/NZD exchange rate volatility, but market sentiment and geopolitical developments will likely overshadow economic releases.
If market sentiment continues to retreat, demand for the ‘Kiwi’ will remain tepid. However, mounting fears regarding a ‘Brexit’ have the potential to keep the GBP/NZD exchange rate trending lower.
Over the past week, the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate was trending within the range of 2.0940 to 2.1474.
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