A turbulent week for GBP/NZD nevertheless saw the New Zealand Dollar edge higher over the course of the past seven days. The Pound Sterling to New Zealand Dollar exchange rate shifted between lows of 1.7639 and highs of 1.7968.
GBP/NZD Slumped despite Huge Widening of New Zealand Trade Deficit
At the start of last week Labour Shadow Chancellor John McDonnel unsettled investors and business leaders after giving a bold speech at the Labour Party conference that the party had returned to socialist values. He vowed to raise the minimum wage above the government’s National Living Wage should Labour get into power, while claiming that the party would crack down on business leaders operating questionable practices.
Also unsettling the Pound was the news that the number of home loans issued had edged down to a 19-month low.
Meanwhile, investors were unperturbed by Sunday’s trade figures for New Zealand, which showed a below-expected exports figure and an above-forecast level of imports. This saw the trade deficit near-triple to -1265 million; over -NZ$0.5 billion above forecast.
New Zealand Dollar Softened by Falling Risk Sentiment, BoE Rate Cut Talks Spook Pound
Bank of England (BoE) Deputy Governor Minouche Shafik caused a temporary Pound sell-off on Wednesday after commenting that further easing from the Monetary Policy Committee (MPC) was likely. Speaking at a Q&A session, Shafik responded to a query from Bloomberg by stating;
‘If we have data prior to that which signals that stimulus is needed, we will obviously act. I’d much rather be on the front foot and act preemptively, rather than be on the back foot and do too little too late.’
However, the New Zealand Dollar was later weakened by a decline in risk-appetite after the latest US consumer confidence score climbed from an upwardly-revised 101.8 to 104.1, instead of slipping to 99.0. US durable goods orders for August further buoyed demand for the ‘Greenback’, pressuring the ‘Kiwi’ lower and slowing GBP/NZD losses.
Pound Sterling to New Zealand Dollar Makes Choppy Decline as Weekend Approaches
While the Pound Sterling to New Zealand Dollar exchange rate spent the rest of the week gradually declining, numerous sources of support ensured the downtrend was by no means a smooth one. Thursday saw an unexpected rise in UK consumer credit, even if mortgage approvals did edge below forecasts. Meanwhile, Friday saw consumer confidence climb back to pre-referendum levels, house prices continue to grow and the index of services unexpectedly rise.
However, GBP/NZD was ultimately pressured lower as the ‘Kiwi’ firmed. After a deluge of Fed speeches, markets were concerned that policymakers were largely sticking to their guns, with little change suggesting December’s meeting could see a repeat of September’s split committee voting to leave rates on hold. This lowered appetite for the US Dollar, boosting the New Zealand Dollar. The ANZ activity outlook and the NBNZ business confidence indices also posted sizeable increases.
May Announces Article 50 Trigger Deadline; Pound Drops vs New Zealand Dollar
The Pound has dropped to its second lowest levels post-Brexit versus the New Zealand Dollar today. Prime Minister Theresa May has used her speech at the Conservative party conference to confirm that she intends to trigger Article 50 of the Lisbon Treaty by the end of March 2017 at the latest.
Commenting on the decision to initiate the UK’s exit, Adam Marshall, British Chambers of Commerce Director General, explained;
‘For most businesses, getting Brexit right is far more important than doing it quickly. Now that the Prime Minister has set a timetable, the government must demonstrate to business that it has a clear and coherent strategy to defend the UK’s economic and business interests in the negotiations that lie ahead.’
The New Zealand Dollar is largely reacting to the Pound’s weakness; Fed rate hike bets show a 61.7% chance of tighter monetary policy in December, weakening risk-appetite. GBP/NZD has declined sharply, although it has found some support from the fact the latest manufacturing PMI has risen against forecasts.
GBP/NZD Exchange Rate Forecast; Brexit Concerns and UK PMIs to Keep Pound Sentiment Choppy
Although some of the market uncertainty in recent weeks has been caused by speculation regarding when exactly Article 50 would be invoked, it is the Brexit negotiations themselves that particularly worry traders. Speculation regarding what shape these will take is only going to increase as the timeframe for triggering the exit process draws nearer. This could ensure appetite for the Pound remains weak.
Further UK PMIs could either reassure or unsettle the markets, although if the construction, services and composite indices perform as well as today’s manufacturing PMI, Pound sentiment could improve significantly.
Tomorrow could be a volatile day for risk assets. The next Global Dairy Auction could yield the fifth consecutive price increase in ten weeks, or suggest that the uptrend has come to an end. The Reserve Bank of Australia’s (RBA) interest rate decision could impact the ‘Kiwi’ if it swells or diminishes appetite for yield hunting.
There is more high-profile US data on the calendar, including Friday’s vital non-farm payrolls, to cause significant volatility for the New Zealand Dollar.