Better-than-expected public sector borrowing figures rescued the Pound from a week of lacklustre trading against the New Zealand Dollar on Friday. Political events in New Zealand also heightened GBP NZD exchange rate gains.
Pound Losses Reversed Ahead of Weekend by Positive Government Borrowing Figures
Sterling was hammered by gloomy reports from both the political and economic fronts last week, starting with Monday’s rumours that the government was readying itself for the utter collapse of Brexit negotiations.
On Tuesday, Bank of England (BoE) Governor Mark Carney warned that a ‘no deal’ Brexit would have a significant negative impact upon the UK economy, which caused markets to overlook the day’s strong inflation data.
Wednesday’s wage growth figures beat forecasts, but real pay fell for the sixth consecutive month, keeping markets in a gloomy frame of mind. This didn’t improve on Thursday, when retail sales data showed a worse-than-expected decline on the month.
However, the Pound was able to sharply recover on Friday after the latest government borrowing report revealed the smallest shortfall for a September since 2007.
At -£5.9 billion, the public sector deficit last month was -£1.6 billion smaller than economists had feared and -£700 million smaller than in September 2016.
New Zealand Dollar Slumps as Labour Party Secures Coalition Backing from NZ First
The political situation in New Zealand weighed on the ‘Kiwi’ last week, as it became apparent that New Zealand First was nearing a decision regarding which party to back in a coalition.
On Thursday, NZ First leader Winston Peters shocked markets by announcing that he would back the Labour party over the National Party, ousting the latter from government after nine years.
Markets tend to think of right-wing governments as being better economic stewards, so the fact the reigns have been passed to a Labour-led coalition at a time when the monetary policy outlook is already soft unsettled traders and caused the New Zealand Dollar to tumble.
This continued throughout Friday’s session, allowing the GBP NZD exchange rate to end the week up 2.4%.
GBP NZD Exchange Rate Soft as UK Industry Data Points to Slowing Demand
The Pound has been softened today by a poor set of reports from the Confederation of British Industry (CBI).
The business optimism index has slumped to a five-month low of -11, thanks to a weakening of output and orders from the UK and overseas.
The CBI stated;
‘Investment intentions for the year ahead deteriorated, with spending plans for buildings at their lowest since July 2009. Expectations for spending on new equipment also weakened. Plans for investment in training and innovation remained much firmer by comparison.’
Although this has weakened the Pound, the fact that the New Zealand Dollar is only just beginning to recover from last week’s sell-off has thus-far kept the GBP NZD exchange rate in positive territory.
Wednesday Forecast to be High Point of GBP NZD Exchange Rate Turbulence
Much of the coming week is rather quiet in terms of both UK and New Zealand data, although Wednesday should be a turbulent day.
The morning sees the release of finalised UK third-quarter GDP figures, which are expected to remain at 0.3% quarter-on-quarter and 1.5% year-on-year.
The evening’s New Zealand trade balance data for September is actually the only dataset scheduled for release at all this week.
The trade deficit is expected to shrink from –NZ$1.23 billion to –NZ$900 million, which could provide the ‘Kiwi’ with some support.
Data Released This Week
25th October 09:30 GBP Gross Domestic Product (QoQ) (3Q A)
25th October 09:30 GBP Gross Domestic Product (YoY) (3Q A)
25th October 22:45 NZD Trade Balance (New Zealand Dollars) (SEP)
25th Ocotober 22.45 NZD Trade Balance (YTD) (New Zealand Dollars) (SEP)
26th October 11:00 GBP CBI Retailing Reported Sales (OCT)
26th October 11.00 11:00 GBP CBI Total Dist. Reported Sales (OCT)