As New Zealand’s trade deficit failed to narrow as far as forecast in September, this encouraged the GBP NZD exchange rate to extend its recent gains.
Investors were not impressed to find that import volumes had continued to outpace exports, highlighting the relative vulnerability of the economy to global market developments.
Further losses were in store for the ‘Kiwi’ on Monday after New Zealand’s Finance Minister Grant Robinson commented on the government’s intention to reform the Reserve Bank of New Zealand (RBNZ).
The suggestion that the RBNZ will have to target full employment as well as price stability when making its monetary policy decisions did not go down well with markets, leaving NZD exchange rates to slump once again.
Warnings Over UK Deficit Fail to Dent GBP NZD
While the Institute for Fiscal Studies (IFS) warned that the UK deficit is on track to clock in at more than double its original forecast, this failed to particularly dampen the appeal of Pound Sterling (GBP) exchange rates.
Although the domestic outlook remains distinctly unimpressive, especially given the persistent uncertainty surrounding Brexit, GBP exchange rates continued to gain ground at the start of the week.
In large part this support is due to continued bets that the Bank of England (BoE) will opt to raise interest rates at its November policy meeting, reversing the 25bpt rate cut made in response to the fallout of the Brexit vote.
A slight slowing in growth of net consumer credit helped to support these hopes, given that policymakers have expressed some concern over the increasing reliance of UK households on credit in recent months.
Falling Unemployment May Boost NZD Exchange Rates
Confidence in the New Zealand Dollar could recover somewhat if the third quarter employment data proves encouraging.
While markets remain jittery over the implications of the new centre-left government, any signs of a strengthening labour market may encourage NZD exchange rates to rally.
Forecasts point towards an uptick in the participation rate coupled with a dip in the unemployment rate from 4.8% to 4.7%, which would send a strong signal of improvement.
Signs of solid wage growth could also help to push the ‘Kiwi’ higher against its rivals, suggesting that the underlying health of the New Zealand economy is robust.
However, any disappointment would only add to the general sense of bearishness that has weighed on NZD exchange rates in recent weeks.
Limited Pound (GBP) Exchange Rate Gains Forecast on BoE Rate Decision
As markets have already largely priced in the impact of a BoE interest rate hike, the GBP NZD exchange rate may struggle to make particular gains in the wake of Thursday’s policy decision.
The Pound remains vulnerable to downside pressure, meanwhile, as the BoE could opt to take a more dovish outlook on monetary policy.
If the Monetary Policy Committee (MPC) signals that it intends to leave interest rates on hold for some time to come this is likely to keep Sterling on a softer footing, especially if November’s vote is split.
On the other hand, a more hawkish announcement could help to boost the Pound against its rivals, encouraging hopes that this could be a true return to monetary policy tightening.
Even so, if the latest raft of UK PMIs point towards weaker economic growth then the GBP NZD exchange rate could see a significant slump.