A week ago Pound Sterling was recording strong gains against the New Zealand Dollar, although investors have deserted the UK asset in recent days after the latest referendum poll showed voters swinging in favour of the ‘Leave’ camp.
GBP Surrenders Gains on Shocking ‘Brexit’ Poll Results
Pound Sterling made significant gains over the New Zealand Dollar during the latter half of the previous week. Positive UK developments, combined with a lack of domestic data to provide ‘Kiwi’ support, allowed GBP/NZD to gain over 2.2% on opening levels, closing at 2.1836. This was despite an unexpected government overspend in April, with borrowing eclipsing forecasts.
However, an appearance before the Treasury Select Committee from Bank of England (BoE) officials Mark Carney, Ben Broadbent, Martin Weale and Gertjan Vlieghe helped to boost investor confidence. Governor Carney provided a robust defence of the BoE’s intervention in the ‘Brexit’ referendum. When questioned by policymakers, he explained that the Bank had a duty to make it known that the Monetary Policy Committee (MPC) unanimously predicted negative economic consequences in the event of a split from the European Union.
The New Zealand Dollar curbed its losses slightly during the Australasian session after positive trade balance figures showed a significant increase in the trade surplus, which narrowed the year-to-date deficit. However, heightened US rate hike speculation kept risk-appetite low and commodities on the decline, with the Fed’s Patrick Harker becoming the latest official to give hawkish commentary on interest rate hikes.
New Zealand Dollar Bullish as ‘Brexit’ Poll Sends GBP Spiralling
Pound Sterling’s fortunes were drastically reversed on Tuesday after the latest telephone poll by ICM suggested a swing in support for a ‘Brexit’. Investors reacted particularly adversely to the news that the phone poll – a methodology which has previously always yielded a result in favour of ‘Remain’ – showed that the ‘Leave’ campaign held a 52%-48% share of the vote. Since the middle of May, the ‘Leave’ campaign has seen support climb by 10%.
The day’s New Zealand Data, while generally low impact, also helped give the ‘Kiwi’ acquire some additional impetus. The ANZ Activity Outlook declined, but the NBNZ Business Confidence index almost doubled to 11.3 and the Terms of Trade Index climbed from -2% to 4.4%.
GBP/NZD Forecast: US Data and GlobalDairyTrade to Provoke Volatility
Today’s GlobalDairyTrade auction has the potential to significantly boost the New Zealand Dollar, should the winning price show an increase on previous figures. Conversely, a significant drop in the GDT Price Index would have severe downside risks for the ‘Kiwi’.
However, today’s high-impact US data threatens to eclipse the GDT auction results. A positive printing from the latest ISM manufacturing PMI and ISM prices paid indexes could cause a significant increase in Fed rate hike bets, which would see an increase in demand for the safe-haven US Dollar at the expense of high-yield assets such as the New Zealand Dollar. Markets predict that this is unlikely though, as the forecasts are for a small drop closer towards contraction territory.
There is no UK data due out for the rest of the session, however tomorrow sees the release of the Markit construction PMI for May and a speech by BoE Governor Mark Carney. Both events have the potential to inspire GBP/NZD movement.
Heads Up
Summary of major upcoming data releases that we think may move the market.