Brexit speculation and a strong focus on the outlook for US monetary policy kept the GBP NZD exchange rate trending widely over the past seven days. GBP NZD climbed to a monthly high of 1.78 on Friday, but has more recently been trending at a two-week low of 1.74.
GBP NZD Rocked by US Dollar and Commodity Market Volatility
Tuesday’s UK data saw investors looking past the positive headline figures. The Pound New Zealand Dollar exchange rate was weakened by the latest UK government borrowing figures, even though they came in lower-than-forecast. Even with public sector net borrowing for September revised down to -£9.2 billion and October’s shortfall clocking in -£1.7 billion below forecast at -£4.3 billion, the UK’s finances were far from rosy. Analysts predicted that the Chancellor would overshoot the 2016-17 fiscal target by £10 billion.
Philip Hammond’s first Autumn Statement as Chancellor left investors on an uncertain footing; the head of the Treasury offered just enough spending on infrastructure to cheer markets, but forecast a significant hole in public finances going forwards.
However, the Kiwi was in a weak position during the middle of last week, unable to capitalise on the Pound’s bearishness due to low demand for commodity-correlated assets. Market expectations of US monetary tightening hit a staggering, not to mention record-breaking, 100%, leaving the NZD GBP exchange rate slumping across Wednesday and Thursday.
Friday’s UK GDP data for Q3 failed to tell investors anything they didn’t already know. The Pound New Zealand Dollar exchange rate was unable to rise, despite the latest estimates reaffirming that the UK economy grew 0.5% quarter-on-quarter and 2.3% year-on-year as initially projected. Meanwhile, the New Zealand Dollar saw strong demand on the back of fears the US Dollar was overvalued. Domestic trade balance data also proved supportive; September’s shortfall was revised lower and October’s deficit clocked in at -NZ$846 million, which represented an almost-halving on the previous month.
Pound Rebounding after OECD Forecasts Heighten Post-Brexit Fears
Today, GBP NZD is recovering from yesterday’s Organisation for Economic Co-operation and Development (OECD) forecasts for the coming two years, which project growth of 1.2% in 2017 and just 1% in 2018. These are considerably more dovish than forecasts offered by the Bank of England (BoE) and the Treasury’s independent watchdog, the Office for Budget Responsibility (OBR). Market hopes of an agreement to cut oil production by the world’s largest oil cartel caused strong demand for commodity currencies, so the New Zealand Dollar was able to capitalise on the Pound’s weakness.
Even though it is recovering, at over three cents below Friday’s highs the GBP NZD exchange rate is still trading under last week’s lows of 1.75.
GBP NZD Exchange Rate Forecast; UK Data and US Speculation to Dominate
With an incredibly sparse data calendar for New Zealand over the coming days, it will be key developments in the UK and the US that contribute the most to GBP NZD movement.
Tomorrow sees the Bank of England (BoE) publish its latest Financial Stability Report, while Markit’s UK manufacturing PMI and construction PMI follow on Thursday and Friday respectively.
Next week is likely to see notable Pound volatility as the Supreme Court is set to hear the government’s appeal to a High Court ruling that it must seek Parliamentary approval before triggering Article 50.
The only notable New Zealand data on the calendar this week is a speech from Reserve Bank of New Zealand Governor Graeme Wheeler on Wednesday. Also of particular relevance to ‘Kiwi’ movement will be high-impact US data throughout the week and the key Chinese manufacturing PMI on Thursday.