UK Inflation and Retail Sales Likely to Drive Pound to New Zealand Dollar Exchange Rate
Despite falling for most of last week’s trading session, the Pound to New Zealand Dollar (GBP/NZD) exchange rate ended the week flat. The pairing continued to trend within a tight margin on Monday in anticipation of upcoming ecostats.
For now, the Pound (GBP) is being supported by hopes of a ‘soft Brexit’, while the New Zealand Dollar (NZD) is being boosted by market risk-sentiment.
GBP/NZD is likely to continue to trend within a narrow band until there is a shift in outlook or risk-sentiment.
Investors are anticipating Britain’s December Consumer Price Index (CPI) report, due on Tuesday. Meanwhile, demand for risk-correlated currencies such as the New Zealand Dollar (NZD) may be affected by upcoming commodity news or changes in US Dollar (USD) trade.
Pound (GBP) Recovers Against New Zealand Dollar (NZD) on Soft Brexit Hopes
During last week’s trading session the GBP/NZD interbank exchange rate fell to a multi-month low of 1.86, before recovering to 1.89 by Friday.
Sterling’s recovery was largely thanks to reports suggesting that Spanish and Dutch finance ministers wished to push for a Brexit deal that would allow the UK to maintain major ties to the EU – a ‘soft Brexit’.
Sources reportedly claimed Spain’s Economy Minister Luis de Guindos and the Netherlands’ Minister of Finance Wopke Hoekstra both wanted Britain to maintain close trading ties to the EU following the split.
The news sent Sterling surging following a week of underwhelming UK data which continued to paint a mixed picture of Britain’s economic outlook.
New Zealand Dollar (NZD) Exchange Rates Limited by Rising Fed Bets
Last week also saw the publication of the latest US core inflation data, which beat expectations. This boosted bets that the Federal Reserve could ramp up the pace of US interest rate hikes in 2018.
As a risk-correlated currency, the New Zealand Dollar is often weakened by a stronger US Dollar (USD), as well as expectations of tighter monetary policy in the US.
In addition to last week’s solid US data and rising Fed rate hike bets, analysts noted the global growth outlook remains much stronger overall.
As a result, the New Zealand Dollar’s general weakness was limited.
Pound to New Zealand Dollar (GBP/NZD) Forecast: UK Inflation and Dairy Auction Ahead
Tuesday’s session could be pivotal for the Pound to New Zealand Dollar (GBP/NZD) exchange rate with data releases likely to inspire movement in both currencies.
The first report of note will be Britain’s December Consumer Price Index (CPI) figures. If the results come in higher than expected it could drive speculation that the Bank of England (BoE) will take a more hawkish stance towards monetary policy this year.
On the other hand, if UK inflation falls short of expectations it could indicate a lack of price pressure, which could weaken Sterling going forwards.
Tuesday will also see Global Dairy Trade (GDT) hold its second January auction. As dairy is New Zealand’s most exported commodity, this could support the New Zealand Dollar if it impresses.
After that, the economic calendar will be largely quiet until Friday, when New Zealand’s business PMI and UK retail sales results from December are published.
On top of this, any variation in Federal Reserve interest rate hike bets or changes in the strength of the US Dollar (USD) could affect demand for the risky New Zealand Dollar.