The Pound to New Zealand Dollar exchange rate was unable to hold recent gains as New Zealand’s economic outlook remained solid, keeping the ‘Kiwi’ afloat. Demand for the Pound slipped on Monday amid fresh Brexit and Scottish independence referendum concerns.
Pound (GBP) Undermined by Scottish Referendum Rumours
After putting on a solid performance for most of last week, the Pound slumped when markets opened on Monday.
With March within touching distance and the activation of Article 50 (to begin the Brexit process) soon to be a reality, investors are once again coming down with a case of Brexit jitters.
Speculation also flared up on Monday that Scotland would announce a second independence referendum after Article 50 is activated.
Scottish independence sentiment is said to have increased following the Brexit vote last year as Scotland largely voted to remain part of the Union.
If Scotland pulled out of the United Kingdom, we would expect the Pound to experience extreme volatility.
New Zealand Dollar (NZD) Sturdy on Economic Expectations
Although the Pound was generally strengthening for much of last week, GBP/NZD gains were limited as demand for the New Zealand Dollar remained firm thanks to domestic economic sentiment.
New Zealand is entering its seventh consecutive year of Gross Domestic Product (GDP) growth and this is predicted to continue for at least a couple more years.
With New Zealand’s interest rate among the highest of major economies, this makes the ‘Kiwi’ Dollar an attractive purchase.
However, uncertainty around the US Trump Presidency and the possibility of higher US interest rates in the coming year has prevented the New Zealand Dollar from reaching peak performance.
GBP/NZD Forecast: Brexit and Trump in Focus
The first week of March could be a turbulent one for both the Pound and the New Zealand Dollar.
If the UK House of Lords is able to amend the conditions for the Brexit process – for example by arguing that EU nationals should have their rights to live in Britain secured – the Pound could firm against its rivals as ‘hard Brexit’ concerns ease. If not, Sterling could remain jittery. UK PMIs from Markit will also be highly influential later in the week with signs of robust UK growth having the potential to bolster GBP.
The New Zealand Dollar, on the other hand, is likely to respond to movements in risk-sentiment.
US President Trump is to deliver his first Presidential address during Tuesday’s American session. If he finally details his highly anticipated economic and fiscal policy plans and they impress traders, Fed rate hike bets could increase and demand for the risky ‘Kiwi’ could fade.