New Zealand Dollar News: NZD Exchange Rates Down from Best Levels Despite Forecast-Beating GDP

GBP/NZD Exchange Rate Recoups Losses Despite Impressive NZ GDP

Despite New Zealand’s third quarter gross domestic product (GDP) performing better than expected, Pound Sterling still managed to clinch the lead on Thursday.

NZ GDP Beats Expectations, New Zealand Dollar (NZD) Exchange Rates Shed Initial Gains

New Zealand’s economy grew faster than expected in Q3 2017, with the nation’s GDP expanding 2.7% year-on-year, down from the previous period’s upwardly revised 2.8% but smashing the market expectation of 2.4%.

This downtick can be explained predominantly by softer growth almost across the board, with deceleration in manufacturing (1.8% vs 3.2%), utilities as well as services.

These are the first GDP figures released since the left-leaning Labour coalition took office in October and could suggest that the government might have to grapple with a slower economy in 2018.

It could also mean that NZ growth will remain below the bank’s target of 3%.

Stephen Toplis, Chief Economist at BNZ Bank echoed this sentiment, stating:

‘I think, it will be safe to say, even with those new numbers, we will be forecasting sub-3 percent’.

This left the outlook for the New Zealand Dollar somewhat muted on Thursday, with the recent drop in global dairy prices also contributing to its fall.

GBP NZD Exchange Rate Supported by Robust Public Sector Net Borrowing

The Pound quickly capitalised on the ‘Kiwi’ Dollar’s reversal today, with the latest positive UK public sector net borrowing figures lending additional support.

Figures from the Office for National Statistics (ONS) revealed that British public sector net borrowing decreased to -£8.12bn in November, down from the previous period’s -£8.23bn and beating the market expectation of -£8.30bn.

This bodes well for UK Finance Minister Philip Hammond’s fiscal targets of 201718, with the UK still doggedly on track to meet them.

In other news, consumer confidence in the UK dropped to a four-year low in December according to data from the GfK.

The market research company revealed that consumer confidence declined to -13, down from the previous period’s -12 and below the market forecast that it would remain steady.

The group cited continually high levels of UK inflation, coupled with low wage growth and the ongoing uncertainty regarding the UK’s future after Brexit as the primary reasons for this drop, with Joe Staton, Head of Market Dynamics at the GfK asserting:

‘We need to see several issues move on before the downward trend of the consumer mood changes. We need to have a better sense of how Brexit will pan out, and also of how quickly and how far interest rates will rise’.

The Pound maintained its lead over the New Zealand Dollar nonetheless, with an absence of news on Brexit-related negotiations also perhaps assisting.

GBP NZD Exchange Rate Outlook: UK GDP and the IMF Growth Forecast

Market attention will shift tomorrow to the UK’s gross domestic product release, with the final reading predicted to sit at 1.5%.

Investors will be especially curious to assess this reading after the recent downgrading in growth by the International Monetary Fund (IMF), however, which predicted that annual growth would hit 1.6% this year, down from the previous estimate of 1.7%, before slowing in 2018 to 1.5%.

IMF Chief Christine Lagarde blamed a lack of clarity regarding the Brexit deal as the primary reasoning for this downgrade, with businesses continuing to hold off on significant investment decisions before post-Brexit trade is clearly defined.

Beyond this, the GBP NZD exchange rate could encounter turbulence in the New Year, particularly with trade talks being delayed until March 2018 at the earliest.

In this respect, the upward potential of the Pound continues to be limited by the weight of Brexit related uncertainty.

Adam Solomon

Adam joined the team at TorFX soon after graduating from University in 2005 with a degree in Journalism. Since then Adam has advanced to become both Head of Trading and Head of Treasury. His keen interest in the currency market and knowledge of what drives exchange rates makes him perfectly positioned to produce regular market updates focused on the movements of the major currencies.

Contact Adam Solomon