The Pound to New Zealand Dollar exchange rate fell to a two-week-low on Wednesday as UK and New Zealand markets reopened after the Christmas period. A fresh risk-rally meant the ‘Kiwi’ was able to easily capitalise on the latest Pound weakness.
Pound (GBP) Limp on Lack of Fresh Support
Last week saw the Pound slump in reaction to the latest Brexit news and it appears unlikely that the currency will be able to recover this week as GBP/NZD continues falling.
The factor of Brexit talks perceived as most concerning continues to be discussions of whether or not the UK will maintain single market access following the Brexit process. Last week it emerged that only one EU member state would need to offer a veto for UK-EU trade talks to hit a dead end.
Sterling’s slightly downbeat attitude didn’t change when UK markets reopened this week. The week’s economic calendar lacked any influential UK datasets and Wednesday’s disappointing BBA house loan results definitely weren’t going to change the Pound’s fortunes.
New Zealand Dollar (NZD) Benefits from Risk-Rally
With market trade thinner thanks to the Christmas break, the New Zealand Dollar benefitted from Wednesday’s increase in demand for higher-risk assets.
The prices of commodities like iron ore and oil have improved since last week and this week’s Chinese data has been thus far impressive. This, as well as a weaker US Dollar, bolstered appetite for risky currencies when domestic markets opened on Wednesday.
The New Zealand Dollar in particular benefitted over its commodity-correlated peers due to a lack of negative headwinds facing the currency in the short to mid-term.
With investors concerned about US/Canada relations during the Trump presidency and speculation that the Reserve Bank of Australia (RBA) may resume its easing bias, the ‘Kiwi’ was left the most appealing of the risky currencies on Wednesday.
GBP/NZD Forecast to Slip until 2017 Risk-Off Rally
With markets quiet this week, a rally in commodity-correlated currencies will be relatively risk-free. However, this run is likely to be limited as markets will quickly get busy again during the first week of 2017.
As a result, while GBP/NZD may continue slipping for much of this week’s session, it may reverse its losses slightly by the New Year thanks to corrective trade and profit-taking.
The upcoming economic data is unlikely to influence Pound/New Zealand Dollar movement considerably, though next week’s first Global Dairy Trade (GDT) auction of 2017 could support NZD if demonstrates an increase in the value of New Zealand’s key commodity.
Ultimately however, risk-correlated currencies are likely to perform poorly in January 2017 as markets react to the early days of the Trump Presidency and what is forecast to be the beginning of a new Federal Reserve rate hike cycle.