Better-than-expected Chinese trade data helped to shore up the commodity-correlated New Zealand Dollar ahead of the weekend.
As import volumes continued to pick up this encouraged greater confidence in the health of the world’s second largest economy, prompting a general uptick in market risk appetite.
However, the GBP NZD exchange rate soon rallied thanks to an unexpectedly strong NIESR gross domestic product estimate.
This latest estimate suggested that the growth of the UK economy accelerated to 0.4% in the three months to August, with the report also indicating that this pace of growth is expected to persist throughout the third quarter.
With confidence in the UK’s economic outlook buoyed by this positive showing the Pound was encouraged to trend higher across the board on Friday.
As July’s visible trade deficit was also found to have narrowed on the month this gave investors additional reason to pile back into Sterling, even though Brexit-based uncertainty remains.
New Zealand Dollar Benefits from Lull in Korean Tensions
Risk appetite strengthened further at the beginning of the week, with investors relieved that North Korea did not conduct another missile test during its Founding Day celebrations.
Naturally this helped to shore up the New Zealand Dollar once again, even though global geopolitical tensions are still far from eased.
While the latest New Zealand credit card spending figures proved mixed this was not enough to prevent the GBP NZD exchange rate trending lower.
As card spending rebounded solidly on the month this added to the bullish mood of the ‘Kiwi’, suggesting that domestic confidence remains relatively strong.
Jitters continued to weigh on the Pound, meanwhile, as parliament prepared to vote on the repeal bill that will take the UK one step closer to Brexit.
With Labour set to oppose the bill – which it is feared could give the government too much control over the incorporation of EU law into UK law books – the process still looks far from smooth.
Even if the repeal bill does pass, thanks to the government’s small working majority, this is unlikely to allay market concerns over Brexit.
Unless there are significant signs that the Conservatives are softening their stance on the matter fears of a hard exit look set to limit the upside potential of Sterling.
Higher UK Inflation Forecast to Boost GBP
If the latest ANZ truckometer and New Zealand food price index point towards an uptick in inflationary pressure this could boost the ‘Kiwi’ further.
Higher levels of domestic inflation would give the Reserve Bank of New Zealand (RBNZ) greater cause for optimism, although the odds of any interest rate hike are likely to remain low regardless.
Support could be in store for the Pound, though, if Tuesday’s UK consumer price index report proves encouraging.
A fresh acceleration in inflationary pressure may give the Bank of England (BoE) reason to consider returning to a monetary tightening bias, especially if August’s uptick is significant.
While rising inflation puts greater pressure on household finances, weakening the domestic economy thanks to lower levels of consumer confidence and spending, this is unlikely to dent the GBP NZD exchange rate.
Even though concerns remain over the UK outlook investors are still primarily concerned with the attitude of the BoE, with anything that raises the odds of a rate hike likely to be greeted.
However, if the September BoE meeting highlights a persistently dovish stance amongst policymakers the Pound could slump sharply.
Unless policymakers are seen to be taking a more optimistic view investors are unlikely to be encouraged by the meeting.