Pound New Zealand Dollar (GBP/NZD) Exchange Rate Shrugs Off 2018 Dairy Price Rebound, Weakness Forecast

Dairy Price Recovery Fails to Dent Pound New Zealand Dollar (GBP/NZD) Exchange Rate

Although the Global Dairy Trade auction saw a 2.2% uptick in prices during its first trading session of 2018 this failed to particularly weigh on the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate.

This rebound was not enough to reverse the impact of the sequence of sharp declines seen in recent months, with the outlook for the dairy industry still looking rather shaky at this juncture.

With fresh domestic data decidedly lacking in the first week of 2018, the New Zealand Dollar (NZD) remained on a generally weaker footing against rivals including the Pound (GBP) and Euro (EUR).

NZD exchange rates remain largely at the mercy of shifts in wider market risk appetite, coming under fresh pressure as a result of more hawkish comments from a Federal Reserve policymaker.

As San Francisco Fed President John Williams expressed confidence in the idea of interest rates being raised three times over the course of the year, the appeal of the commodity-correlated New Zealand Dollar naturally declined.

Given that the Reserve Bank of New Zealand (RBNZ) does not look set to follow suit any time soon, this helped keep the GBP/NZD exchange rate on a stronger footing.

Slowing Halifax House Prices Weigh on Pound Exchange Rate Outlook

However, the Pound New Zealand Dollar (GBP/NZD) exchange rate also came under some pressure as a result of the latest Halifax house price report.

While prices unexpectedly contracted -0.4% on the month in December, investors were also discouraged by the gloomier nature of Halifax’s forecast for the coming year.

As the UK housing market looks set to lose further momentum over the course of 2018, confidence in Sterling and the wider economic outlook diminished.

Jitters over Theresa May’s much-anticipated cabinet reshuffle also kept the GBP/NZD exchange rate in check, with markets wary of any potential political disruptions.

Even though none of the major cabinet posts, such as Foreign Secretary or Chancellor of the Exchequer, were expected to change hands investors were still inclined to take a more cautious view of the Pound.

New Zealand Dollar Exchange Rate Volatility Forecast on Shifting Market Risk Appetite

Although New Zealand data remains thin on the ground over the coming week, the GBP/NZD exchange rate is likely to see volatility in response to November’s building permits figure.

After October’s sharp contraction of -9.6%, markets are hoping to see a solid rebound, even if it doesn’t reverse the entirety of the previous month’s decline.

Unless the New Zealand housing sector can show signs of recovery, however, NZD exchange rates are likely to remain biased to the downside.

Even so, if the Chinese consumer price index strengthens in line with forecasts on Wednesday, this could offer support to the New Zealand Dollar.

Continued signs of strength from the world’s second largest economy would benefit the risk-sensitive ‘Kiwi’, although any such strength would be relatively fragile in nature.

GBP/NZD Exchange Rate Weakness Forecast Ahead of UK GDP Estimate

The GBP/NZD exchange rate could see additional movement on the back of the NIESR gross domestic product estimate for the fourth quarter of 2017, meanwhile.

Any signs that the UK economy is losing momentum could weigh heavily on demand for the Pound, given that the outlook is expected to remain challenging for some months to come thanks to Brexit-based uncertainty.

Focus will also turn to the publication of the Bank of England’s (BoE) Credit Conditions and Bank Liabilities Surveys, which may put pressure on GBP exchange rates.

If the BoE expresses fresh concern over domestic credit this could diminish the odds of another imminent interest rate hike, to the detriment of the GBP/NZD exchange rate.

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