New Zealand Predicts 1% GDP Growth from TPP Deal, Pound New Zealand Dollar (GBP/NZD) Exchange Rate Tumbles

Update 2: Upbeat New Zealand Trans Pacific Partnership Forecast Limits Pound New Zealand Dollar (GBP/NZD) Exchange Rate

The Pound New Zealand Dollar (GBP/NZD) exchange rate extended its fall into Thursday morning as markets reacted to an estimate that the renewed Pacific trade deal (TPP) could boost the New Zealand’s economy by up to 1%.

According to New Zealand’s Ministry of Foreign Affairs and Trade, the deal could expand the New Zealand economy by up to 4 billion NZD a year, with the Ministry also warning that not signing into the agreement would risk shrinking the GDP of the nation and losing significant ground to competitors.

It should be stressed, however, that whilst Japan, Canada and Australia are moving to sign the deal in March, it will not come into full effect until every one of the 11 countries involved either ratify or pull out of the deal.

Update 1: Pound New Zealand Dollar (GBP/NZD) Exchange Rate Liable to see Volatility on UK Growth Readings

The Pound New Zealand Dollar (GBP/NZD) exchange rate could see further volatility tomorrow as markets assess the UK growth readings, with UK GDP expected to have held steady at 1.5% year-on-year in Q4, and 0.5% quarter-on-quarter.

Any reading above this would underline the UK’s economic resilience and potentially push the BoE even closer to adjusting the speed by which they tighten monetary policy this year.

On the New Zealand front, markets will be paying close attention to tomorrow’s NZ credit card spending figures for January and the NZ retail sales figures, due later into the day.

UK Labour Market Figures Prove Mixed – Pound (GBP) Exchange Rates come under Pressure

The Pound New Zealand Dollar (GBP/NZD) exchange rate came under pressure on Wednesday, falling around 0.5% as markets responded to a run of mixed labour market figures for the UK and news that whole milk powder – New Zealand’s primary export – has risen in price.

According to figures from the Office for National Statistics (ONS) unemployment in the UK rose to 4.4% in the three months to December. This is higher than the previous period’s 4.3% and the forecast that it would remain steady.

The change marks the first rise in UK unemployment in two years, although it should also be noted that the release also featured an accompanying healthy rise in total employment.

John Hawksworth, Chief Economist at PwC pointed out the anomaly:

‘…closer inspection suggests this is not a sign of labour market weakness as it was also accompanied by a healthy rise in total employment focused on full-time jobs. Instead it reflects more previously inactive people seeking work, some of them finding jobs and others still searching as so being classified as unemployed.’

In other news, wage growth in the UK (excluding bonuses) accelerated to 2.5% - up from the previous 2.3% and the market forecast of 2.4%.

This was largely driven by a tightening labour market, with companies pushed towards lifting pay packets in order to retain key staff members and remain competitive.

The figure remains below the UK’s 3% inflation rate, however, so the real-wage squeeze on British households continues.

New Zealand Dollar (NZD) Exchange Rates Up Despite Drop in Global Dairy Trade Price Index

The Pound to New Zealand Dollar (GBP/NZD) exchange rate failed to capitalise on a downward shift in the bi-weekly Dairy Trade Price auction today, with markets instead focused on the separate price rise in New Zealand’s primary export, whole milk powder.

The global dairy trade price index dropped by -0.5% for the first time this year – ending the run of three consecutive rises.

Whole milk powder prices, however, increased by 0.3%, hitting their highest level in nine months and ultimately leaving the market relatively stable.

Matamata Sharemilker Matthew Zonderop shared his optimism about the results:

‘It was only a very slight dip – butter is continuing to climb. The future is looking a little bit more positive – (prices) have certainly stabled out over the last few auctions, despite having a tough season.’

This news left GBP/NZD firmly in the ‘Kiwi’ Dollar’s favour.

Pound New Zealand Dollar (GBP/NZD) Exchange Rate Forecast: UK Rate Hike Prospects in the Spotlight

The Pound New Zealand Dollar (GBP/NZD) exchange rate could find room to rally later today depending on what is said by Bank of England (BoE) Governor Mark Carney and policymakers Andy Haldane and Silvana Tenreyro.

With wage growth shown to be steadily rising and inflation continuing to remain high it is possible that Carney, or indeed the other speakers, could leave us a hawkish titbit pertaining to an earlier-than-expected rate hike.

Markets have been mulling over the possibility of a May rate hike for some time, but Carney has insisted that one primary deciding factor would be demonstrable progress being made on the Brexit transition front.

Whilst this has not occurred outright, market optimism for Brexit has risen on the back of recent reports that the European Parliament is preparing to offer the UK ‘privileged’ access to the single market – a shift in sentiment also expressed by German Chancellor Angela Merkel.

Indeed, if the speakers do offer optimism or a hawkish view on the state of the UK’s economy then Sterling could claw back some of its losses.

John Cameron

John studied economics at Cambridge University and later became an MSTA qualified Technical Analyst. He began working for TorFX almost a decade ago and now holds a Senior Account Manager position. As well as lending his clients support and guidance, John has produced market commentary and detailed exchange rate analysis for a number of online publications.

Contact John Cameron