In recent GBP/NZD news, the latest ANZ Truckometer encouraged confidence in the ‘Kiwi’, showing a strong rebound on the month. As the measure jumped 4.1% this encouraged speculation that inflationary pressure within the New Zealand economy is building. A general uptick in market risk appetite also improved the appeal of the antipodean currency, with demand for higher-yielding currencies improving in response to solid Chinese trade data.
Once again markets were caught out by the British voters, prompting the GBP NZD exchange rate to slump sharply as the results of the snap general election became clear. Investors were unprepared for a hung parliament, although Sterling began to recover ground as Theresa May moved quickly to forge an alliance with the Democratic Unionist Party (DUP). This eased concerns of political instability, at least in the short-term, and bolstered hopes that the government could soften its approach to Brexit. Even so, with investors unconvinced as to the tenability of May’s position following the election disaster the Pound struggled to regain any particular support ahead of the weekend.
Political Jitters Maintain GBP NZD Downside
Even though New Zealand card spending was found to have unexpectedly contracted in May, the GBP NZD exchange rate failed to capitalise on this on Monday. Lower levels of spending suggest that consumers are becoming more cautious, boding ill for the outlook of the wider New Zealand economy. However, the relative softness of the Pound helped to prevent any gains against the ‘Kiwi’. If confidence remains weaker the Reserve Bank of New Zealand (RBNZ) is likely to maintain a neutral view on monetary policy.
Sterling remained under pressure at the start of the new week, with the minority Conservative government failing to show any particular signs of strength. While senior Tories started to rally behind Theresa May (at least for the time being) this was not enough to curb speculation that the country could return to the polls sooner rather than later. Suggestions that the formal start of Brexit negotiations may have to be pushed back also weighed on the Pound by encouraging fears that the process will be a fraught one.
Stronger GDP Could Extend New Zealand Dollar Gains
The first quarter New Zealand gross domestic product report could bolster the appeal of the ‘Kiwi’ further, providing that growth is found to have strengthened at the start of the year. Forecasts point towards an uptick of 0.7% on the quarter; a result which would encourage greater confidence in the health of the domestic economy. On the other hand, if economic activity failed to strengthen in the first quarter the GBP NZD exchange rate could return to an uptrend.
However, demand for the Pound could remain muted ahead of the Bank of England (BoE) policy meeting. Thursday’s policy decision is not expected to yield any change in monetary policy but investors will nevertheless be paying close attention to the tone of policymakers. If the central bank appears to be shifting towards a more dovish bias this could dent the Pound dramatically, raising the likelihood of interest rates remaining at their current record low for the foreseeable future.
Any detrimental political developments could see the GBP NZD exchange rate weaken further, especially if Brexit talks look set to start off on the wrong foot. If Theresa May is unable to pull together her minority government and the situation remains unstable, the New Zealand Dollar could climb to fresh multi-week highs against the Pound.