Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Strengthens Even After UK Retail Sales Miss Forecast

Update: GBP/NZD Exchange Rates Pushes Higher as Pound Demand Rebounds

In spite of the underwhelming nature of the latest UK retail sales data the Pound to New Zealand Dollar (GBP/NZD) exchange rate pushed sharply higher during the course of trading on Thursday.

This sudden boost to the Pound (GBP) appeared to be the result of investors buying back into the weakened currency, which has seen notable softness in recent days.

With markets still optimistic that the Bank of England (BoE) will go ahead with a May interest rate hike the downside potential of GBP exchange rates is still limited.

Pound New Zealand Dollar (GBP/NZD) Exchange Rate Struggles to Capitalise on NZ Inflation Dip

As the first quarter New Zealand consumer price index eased from 1.6% to 1.1% on the year this offered the Pound to New Zealand Dollar (GBP/NZD) exchange rate some support on Thursday morning.

Investors were not impressed to find that inflationary pressure had dropped back in the first quarter; something which is likely to give the Reserve Bank of New Zealand (RBNZ) further incentive to leave monetary policy on hold.

While the quarterly measure bettered forecast this was not enough to prevent the New Zealand Dollar (NZD) trending lower across the board, even as the wider sense of market risk appetite improved.

With New Zealand inflation failing to mount as policymakers would like the downside potential of the GBP/NZD exchange rate is limited at this juncture.

UK Retail Sales Slump Dents GBP/NZD Exchange Rate

Despite a terrible UK retail sales report, the Pound to New Zealand Dollar (GBP/NZD) exchange rate struggled to make any headway.

Adverse weather conditions were widely credited for limiting consumer spending in March, prompting sales excluding auto fuel to contract -0.5% on the month.

While this weakening was largely the result of wintry conditions keeping shoppers indoors the contraction still bodes ill for the first quarter UK gross domestic product, weighing down Pound (GBP) exchange rates as a result.

As higher levels of consumer spending helped to fuel growth in 2017 the decline in sales is likely to drag on economic activity, especially following the unimpressive figures seen in January and February.

The softening in retail sales also undermines the case for an imminent Bank of England (BoE) interest rate hike, limiting the GBP/NZD exchange rate’s ability to push higher.

Higher NZ Credit Card Spending to Weaken Pound New Zealand Dollar Exchange Rate Further

Monday’s New Zealand credit card spending figures may leave the Pound to New Zealand Dollar (GBP/NZD) exchange rate on a weaker footing.

If spending continued to accelerate in March this should diminish market worries over the domestic outlook, even in the absence of greater inflationary pressure.

Focus will also fall on the latest raft of New Zealand trade data, especially given lingering market doubts over the health of the global economy.

An uptick in imports could weigh heavily on NZD exchange rates, with the New Zealand economy still looking vulnerable to any escalation in global trade tensions.

GBP/NZD Exchange Rate Volatility Forecast on UK Government Borrowing Figures

A rallying point could be in store for the Pound to New Zealand Dollar (GBP/NZD) exchange rate, though, if March’s UK public sector net borrowing figure proves encouraging.

The presence of a fiscal surplus could bolster the appeal of the Pound, giving investors fresh reasons to bet on the prospect of a more hawkish BoE policy outlook.

However, an uptick in new government debt could exacerbate worries over the outlook of the UK economy, leaving GBP exchange rates on a softer footing.

Any fresh signs of weakening economic momentum may push the GBP/NZD exchange rate lower still.

Hannah Wilson

Contact Hannah Wilson