Pound to New Zealand Dollar Exchange Rate Falls from Highs as Risk Sentiment Rises

Fading Worries about US Protectionism Pushes Pound to New Zealand Dollar Exchange Rate Lower

The Pound to New Zealand Dollar (GBP/NZD) exchange rate surged last week largely on the back of domestic data. However, the pair slipped from its best levels on Friday afternoon as investors pivoted towards risk-correlated currencies.

GBP/NZD opened last week at the interbank level of 1.90 and ended the week over two cents higher.

The pair has been unable to hold a one-month-high of 1.94, as risky currencies like the New Zealand Dollar (NZD) became more appealing following the conclusion of the World Economic Forum (WEF) in Davos.

Investors were concerned that the US administration would ramp up the protectionist rhetoric at Davos, but the event came to a conclusion without any notable surprises.

As a result, traders took the opportunity to indulge in riskier investments. This also gave investors an opportunity to take profit from the Pound’s (GBP) best levels, and buy into in risky rivals like the New Zealand Dollar.

Sterling (GBP) Exchange Rates Hit by Fresh Brexit Concerns

The Pound, weighed by the latest domestic political uncertainties. was unable to advance back up to last week’s highs on Monday morning.

Over the weekend, rumours emerged claiming UK Prime Minister Theresa May could face a vote of no-confidence if she does not offer greater clarity on the government’s Brexit stance.

The UK government has been perceived as more in favour of a ‘soft Brexit’ in recent weeks, which has helped the Pound’s appeal. Last week, however, hardline ‘Brexiteers’ in the governing Conservative party began to voice their frustration about the tone and direction of Brexit negotiations.

These continued fissures in the government have left MPs desperate for more clarity from the Prime Minister on what kind of Brexit the government will actually aim for in trade negotiations with the EU this year.

Investors are also anxious about the status of the EU withdrawal bill, which has passed through the House of Commons but has already faced criticism and concern from the Lords, who say much of it should be rewritten.

New Zealand Dollar (NZD) Remains Under Pressure Following Inflation Results

The New Zealand Dollar benefitted from a brief boost in risk-sentiment at the end of last week, but the currency was still far less appealing overall due to disappointment in New Zealand’s latest key data.

Last week saw the publication of New Zealand’s Q4 Consumer Price Index (CPI) results, which fell short of expectations in both major prints.

New Zealand inflation was forecast to slip from 0.5% to 0.4% quarter-on-quarter but came in at just 0.1%. The yearly figure was forecast to remain at 1.9% but fell to 1.6%.

This dampened market speculation that the Reserve Bank of New Zealand (RBNZ) could take a more hawkish stance on monetary policy in the coming months. It has continued to weigh on NZD demand on Monday.

Pound to New Zealand Dollar (GBP/NZD) Forecast: Brexit News Takes Focus

Unless more political news influences the Pound to New Zealand Dollar (GBP/NZD) exchange rate in the coming days, the pair could continue to trend in a relatively narrow region near the week’s opening levels.

Upcoming UK and New Zealand economic data is unlikely to be hugely influential but could cause some movement in GBP/NZD.

UK consumer credit and mortgage data will be published on Tuesday, while GfK’s January consumer confidence survey is set to be published on Wednesday.

Meanwhile, New Zealand’s December trade report could cause some New Zealand Dollar movement on Tuesday. Additionally, ANZ consumer confidence data will be published on Friday.

The biggest focus will be on potential developments in the UK government or the Brexit process. Risk sentiment impacting the New Zealand Dollar could furthermore be driven by Wednesday’s Federal Reserve policy decision.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard