The Pound Sterling New Zealand Dollar exchange rate slumped last week, falling over -2% from 1.8258 to 1.7850 by the beginning of Thursday’s trading.
Pound Weakens after Strong Services PMI as Carney Stands by Current Easing Bias
Despite a bullish recovery from the UK services and composite PMIs, the Pound was unable to make gains versus the New Zealand Dollar last week, instead only holding ground before the week’s GBP decline began on Tuesday. The services PMI leapt from 47.4 to 52.9, posting a surprise growth score after a neutral 50 was predicted. The composite rose above forecasts of 50.8, advancing from 47.5 to 53.6. Added to the previous week’s strong rebounds in the manufacturing and construction sector, the data painted a significantly better-than-expected picture of the UK economy in the wake of the Brexit vote.
However, trader hopes that this meant further monetary stimulus measures from the Bank of England (BoE) were dashed on Thursday after Governor Mark Carney expressed confidence in the stimulus already unleashed and signalled further policy loosening may be in the pipeline. Despite backlash from many Brexiters in response to the Monetary Policy Committee’s (MPC) post-Brexit stimulus, Mark Carney claimed he was ‘absolutely serene’ regarding the bank’s judgements on the risks to the economy.
Markets may have expected the strong PMI data to have improved the Bank’s outlook, but Carney kept bets of policy loosening firm after commenting;
‘I absolutely feel comfortable with the decision I supported and the committee took in August to supply monetary policy stimulus.’
Further weakening appetite for GBP were weaker-than-expected Halifax house prices and manufacturing production reports, despite an above-forecast rise in industrial production. The National Institute for Economic and Social Research (NIESR) released its latest economic report, suggesting that the UK could fall into recession during 2017. This, combined with Carney’s sentiments, continued to weigh on the Pound until the weekend.
Strong Rebound in US Rate Hike Expectations Cuts New Zealand Dollar Advance Short
The New Zealand Dollar saw a sharp reversal in fortunes towards the end of last week. The ‘Kiwi’ started the week trading bullishly, boosted on Tuesday by two key events. Firstly, a more upbeat outlook from the Reserve Bank of Australia (RBA) boosted risk appetite, even though markets had already expected the rate freeze that was delivered by policymakers.
Later, the New Zealand Dollar received further support after another sizeable jump in dairy prices as a result of the latest GlobalDairyTrade auction. The GDT Price Index had previously climbed 12.7% and this time saw a rise of 7.7%. While only just over half of the recent auctions have yielded price rises, two of them saw no change and there was only one significant decline, meaning the overall trend now sees prices steadily recovering.
The ‘Kiwi’s exuberance faltered at the end of the week thanks to hawkish comments from the US Federal Reserve. During the latter part of the week, the Fed’s John Williams, Eric Rosengren and Esther George all gave upbeat assessments of the US economy. Williams and Rosengren also expressed concerns that long-term low interest rates were damaging the economy and so the risk from doing nothing was greater than the risk of normalising policy.
This caused a significant rise in rate hike bets, boosting demand for the safe-haven US Dollar and cooling appetite for high-risk assets like the New Zealand Dollar. As a result, the New Zealand Dollar ended the week having lost most of the gains made in earlier days.
Pound New Zealand Dollar Exchange Rate Forecast; NZD Dominance Threatened by US Data
After a slow start to the week, there is plenty of UK and New Zealand data on the calendar to create GBP/NZD exchange rate volatility. Chinese industrial production and retail sales data on Tuesday could create ‘Kiwi’ movement ahead of the New Zealand current account figures. Meanwhile the UK docket opens with consumer price index figures on Tuesday, which are expected to show a mild uptick in inflation as the effects of weakened Sterling begin to filter through the economy.
Wednesday could see serious headwinds for the Pound, thanks to the release of jobless claims and wage growth figures, which are largely forecast to print lower than previous results. Further volatility for GBP/NZD will come from the New Zealand GDP report for the second quarter, with growth predicted to rise from 0.7% to 1.1% on the quarter and from 2.8% to 3.6% on the year.
The Bank of England (BoE) meets to discuss interest rates on Thursday, although no changes to either borrowing costs or asset purchases are expected. Meanwhile key US data could weaken the ‘Kiwi’ if it prints positively and further boosts hopes of tighter monetary from the Federal Reserve in December.
New Zealand consumer confidence figures are due for release on Friday, then the day’s GBP/NZD exchange rate movements will be largely decided by more tier-one US data. Consumer prices and confidence are both expected to rise.