The Pound to New Zealand Dollar exchange rate started the week edging higher, but has since slumped and on Wednesday hit a month and a half low of 1.7999.
A controversial poll published by YouGov has claimed that the UK Conservative party may not win enough seats to form a majority government in the upcoming election, worsening Sterling uncertainty.
Pound (GBP) Undermined by Election Jitters
Since the UK general election was announced in April, investors have been confident that the Conservative party, led by UK Prime Minister Theresa May, would extend its parliamentary majority. This improved bets that the government would have more room to breathe during Brexit negotiations.
However, in recent weeks the Conservative lead has slipped slightly and the opposition Labour party has become more popular. This has been due to unpopular policies in the Conservative manifesto, particularly on the subject of social care.
Then, on Tuesday night, YouGov published a poll predicting that the Conservative party could lose seats and come in below the 326 seats needed to form a majority government. This would lead to a ‘hung parliament’.
In this scenario, it’s possible the Labour party could make a coalition with the Liberal Democrats and take power away from the Conservatives.
While analysts note that most polls still predict a majority for the Conservatives, this new possibility has worsened market uncertainty and left the Pound unpopular.
New Zealand Dollar (NZD) Firmer on RBNZ Speculation
Despite Monday’s underwhelming New Zealand building permits results, the latest financial stability report from the Reserve Bank of New Zealand (RBNZ) was enough to bolster demand for the New Zealand Dollar after it was published during Wednesday’s Asian session.
The RBNZ stated in its report that both domestic and global risks to the nation’s financial system had faded in recent months.
While the RBNZ remains cautious about the domestic house price market or global protectionism, the bank was optimistic.
This caused some investors to begin speculating that if the housing market cools down the RBNZ could even begin to tighten monetary policy sometime this year.
GBP/NZD Forecast: UK PMIs in Focus
The Pound to New Zealand Dollar exchange rate’s underlying movement is likely to continue to be influenced by UK general election polls until the election itself takes place next Thursday.
If polls continue to mostly indicate that the Conservative party will still win a majority, the Pound could recover slightly. However, if polls continue to shift in Labour’s favour, uncertainty will increase and the Pound will weaken.
Data due towards the end of the week and the beginning of next week also has the potential to influence the Pound.
Thursday will see the publication of Britain’s May manufacturing PMI from Markit, which is predicted to slow slightly from 57.3 to 56.5. Construction PMI will follow on Friday, with the key services PMI being published on Monday.
As for the New Zealand Dollar, a lack of influential data due until next week means the ‘Kiwi’ is likely to be influenced by risk-sentiment and Federal Reserve interest rate hike bets for the remainder of the week. GBP/NZD will be driven by Sterling.