The Pound to New Zealand Dollar exchange rate ended last week at highs around 1.8100 – its best levels since June. This was due to New Zealand political concerns.
While the pair briefly advanced to a high of 1.8137 on Monday morning, the pair quickly slipped again as Britain’s latest construction PMI fell short of forecasts.
Pound (GBP) Fails to Hold Ground as Brexit Uncertainties Worsen
The latest UK data has failed to help the Pound hold its highs, as Markit’s August construction PMI disappointed investors.
Construction was forecast to improve slightly, from 51.9 to 52, but instead slumped to 51.1. This was the lowest result in a year, with the print slipping closer to the 50 mark that separates contraction from growth.
According to Markit, the primary reason for weakness in the construction sector was uncertainty about Britain’s economic outlook.
Some analysts pointed out that the core concern for clients, who are delaying or downsizing plans, is the ongoing Brexit process.
As both politicians and businesses remain uncertain about how the Brexit process is going and how it will affect Britain’s economy in the long term, this is beginning to affect business decisions and have a negativity impact on economic activity.
New Zealand Dollar (NZD) Pressured by Political Concerns
The New Zealand Dollar did advance slightly today, but it has overall been unable to capitalise on Sterling weakness.
Investors sold the New Zealand Dollar last week due to domestic concerns, coupled with weaker risk-sentiment.
New Zealand’s recent data has been underwhelming, which has left analysts suggesting that the Reserve Bank of New Zealand (RBNZ) is not likely to take a hawkish stance on monetary policy within the foreseeable future.
On top of this, markets have been surprised by news that New Zealand’s Labour party is surging in polls, partially due to the popularity of Labour leader Jacinda Ardern.
With New Zealand’s 2017 general election set to take place on the 23rd of September, uncertainty about New Zealand’s political outlook is weighing on ‘Kiwi’ demand.
News that North Korea continues to test missiles has also dented support for the risk-correlated ‘Kiwi’.
GBP/NZD Forecast: UK Services PMI in Focus
The Pound to New Zealand Dollar exchange rate is likely to be driven by Pound demand in the coming days, as Britain’s August services PMI results have the potential to alter the Pound outlook.
Analysts expect that services will have slowed slightly, from 53.8 to 53.5.
If the services sector performed even worse than expected it will indicate that Britain’s biggest economic sector is slowing faster than expected in the second half of 2017. This would lead to further Pound weakness.
On the other hand, stronger than forecast services results would boost GBP/NZD and likely help the pair to hold its best levels since June.
New Zealand Dollar strength will also play a part in GBP/NZD movement in the coming days. If North Korea jitters cool or New Zealand’s election polls paint a clearer picture of the outcome, the New Zealand Dollar could see stronger demand.
September’s first Global Dairy Trade (GDT) auction will also be held. As dairy is New Zealand’s most lucrative commodity, stronger dairy prices would strengthen ‘Kiwi’ trade.