Update: Weaker-Than-Forecast UK Consumer Credit Fails to Boost GBP Exchange Rates
The weaker-than-forecast UK net consumer credit figure for January points towards a further easing in domestic spending, given the continued pressure on wages.
However, as BoE policymakers have expressed some concern over higher levels of unsecured credit in the past this softer figure may still be enough to encourage greater hawkishness.
Nevertheless, this was not enough to materially shore up the GBP/NZD exchange rate this morning.
Stronger-than-Forecast NZ Terms of Trade Dent Pound New Zealand Dollar Exchange Rate
Thanks to the hawkish nature of comments from Federal Reserve Chair Jerome Powell, markets have been in a more risk averse mood, although this has failed to limit the weakness of the Pound to New Zealand Dollar (GBP/NZD) exchange rate.
Confidence in the New Zealand Dollar (NZD) picked up on Thursday morning thanks to a better-than-expected fourth quarter terms of trade index.
Rather than easing, as forecast, the index instead strengthened to 0.8%, suggesting that the outlook for the New Zealand economy is more positive than previously thought.
However, after the sharp widening of January’s trade deficit at the start of the week the upside potential of the New Zealand Dollar is still somewhat limited at this juncture.
With the Reserve Bank of New Zealand (RBNZ) forecast to leave interest rates on hold for the duration of 2018 markets see few reasons to support NZD exchange rates.
GBP Exchange Rates under Pressure after Release of Draft EU Withdrawal Treaty
Brexit-based jitters continued to weigh on the GBP/NZD exchange rate, with investors still discouraged by the first draft of the EU’s proposed withdrawal treaty.
Even so, the Pound (GBP) was able to recover some ground in the wake of a relatively solid UK manufacturing PMI.
Although the index dipped from 55.3 to 55.2 in February, an eight-month low, this still offered Sterling some cause for confidence on Thursday as job creation and demand both picked up on the month.
While the outlook for the UK economy remains rather muted, thanks to the uncertainty of Brexit, this was still enough to limit the downside bias of GBP exchange rates for the time being.
As long as the corresponding services PMI also remains firmly within expansion territory the GBP/NZD exchange rate should be able to return to a slightly stronger footing next week.
New Zealand Dollar Weakness Forecast on Bets of More Aggressive Fed Tightening
Support could be in store for the GBP/NZD exchange rate if Fed Chair Powell maintains a relatively hawkish tone on monetary policy in his next appearance before Congress.
If Powell continues to leave the way open for the Fed to raise interest rates up to four times over the course of 2018 this should weigh heavily on the risk-sensitive New Zealand Dollar.
An uptick in the US personal consumption expenditure figure may also put pressure on NZD exchange rates, given that this is the Fed’s preferred measure of inflation.
However, if February’s ANZ consumer confidence index shows another increase on the month this could offer the New Zealand Dollar fresh support.
Signs of greater optimism within the New Zealand economy should give investors cause for confidence, even though the economic outlook appears to remain mixed at best.
GBP/NZD Exchange Rate Jitters Anticipated Ahead of May Brexit Speech
Greater volatility is forecast for the GBP/NZD exchange rate ahead of the weekend, though, with Prime Minister Theresa May preparing to deliver her latest speech on the subject of Brexit.
Unless May shows signs of softening her approach to the issue this is likely to open the way for further Pound weakness, adding to the sense of domestic uncertainty.
Even so, after the sharp slump seen on Wednesday a significant degree of Brexit worries appears to already be priced into GBP exchange rates.
As a result, there is the potential for a marked GBP/NZD exchange rate rally if markets become confident about May’s comments.