Polarised data from the UK, combined with a lack of appetite for the risky New Zealand Dollar, allowed the GBP NZD exchange rate to end the week trading higher. However, gains were not easily won.
Inflation Data Shows UK Consumer Prices Grew Even Faster Than Expected
Tuesday’s inflation data showed that prices had grown by even more than expected in April. Economists had estimated inflation would increase from 2.3% to 2.6%, but prices instead rose 2.7% year on year. Core price growth leapt from 1.8% to 2.4% – ten basis points above-forecast as well.
With the Bank of England (BoE) still holding firm against pressures to hike interest rates despite the strong inflation, the above-forecast price growth therefore pushed the Pound lower, with investors worried that consumer activity would suffer as a result of surging costs.
However, data released on Wednesday and Thursday somewhat challenged these fears. Wage growth in the three months to March accelerated to 2.4% as expected, indicating that household budgets won’t be quite so pressured by the rising expenses.
Retail sales performed much better-than-forecast, rising 2% on the month and 4.5% on the year, compared to forecasts of 1% and 2.6% respectively. This suggested consumer spending remains firm, in spite of rising costs. This was sufficient to see the Pound push away from its lows and end the week marginally higher against the New Zealand Dollar.
Today, the Pound has slumped against the ‘Kiwi’. Investors believe the current political scandals in the US could distract the White House from implementing economic reforms, which may slow the pace of Federal Reserve interest rate hikes. This would improve the outlook for the New Zealand Dollar.
Weak Risk Appetite Overshadows Positive Data to Slow NZD Gains
Positive retail sales data, released late on Sunday, only gave the New Zealand Dollar fleeting support. Sales grew 1.5% quarter-on-quarter during the first three months of 2017, compared to forecasts of 0.9%. Growth in the final quarter of 2016 was also revised higher. However, the performance of services index for April had dropped from a downwardly-revised 58.8 to 52.8.
The latest global dairy auction yielded another strong rise in dairy prices. The average winning price for New Zealand’s chief export climbed 3.2% to US$3,313 per metric tonne. This marked the fifth consecutive event in which prices had risen, yet the New Zealand Dollar’s reaction was rather muted compared to usual.
Data on Thursday showed that consumer confidence had risen in May, but the increase was smaller than April’s decrease, so overall sentiment remained worse than it had in March. The index increased 1.8% to 123.9 after April’s -2.8% decline.
Overall, weak global risk appetite curbed the New Zealand Dollar’s ability to capitalise on positive developments, while heightening sell-offs. So, while the ‘Kiwi’ was able to claw its way higher in the middle of the week, it had given up its gains by the weekend.
GBP NZD Exchange Rate Forecast; Quiet Data Week Could Give Pound Sterling the Edge
Tomorrow could be one of the most volatile days for the GBP NZD exchange rate, given that it is one of just two days this week where UK data is released and the only one where any New Zealand data is released.
UK government borrowing figures for April will be released in the morning, with forecasts expecting the deficit to have nearly doubled from -£4.4 billion to -£8 billion. Meanwhile, late night trade figures from New Zealand are anticipated to show that the trade surplus narrowed from NZ$332 million to NZ$267 million.
Thursday will see the release of a second estimate for UK first-quarter GDP. Although made using more data – which will therefore give a clearer picture of the economy – analysts expect no change from the initial predictions for a slowdown from 0.7% to 0.3%.