Unexpected Rise in UK Construction Activity Fails to Support GBP/NZD Exchange Rate
UPDATE: The Pound (GBP) has held close to opening levels against the New Zealand Dollar (NZD) today, despite the latest UK PMI data.
June’s construction PMI has shown an unexpected rise in sector activity, increasing from 52.5 points to 53.1.
This strong reading comes against expectations for a slowdown to 52.4 points.
Although NZ business confidence levels have fallen by -20% in Q2 2018, the New Zealand Dollar has stayed resilient because of a weak US Dollar.
Low New Zealand Dollar Demand Pushes GBP/NZD Exchange Rate Up
UPDATE 14:30 BST: The Pound (GBP) has improved against the New Zealand Dollar (NZD) today, rising to an exchange rate of NZ$1.95 at the interbank rate.
This appreciation is mainly down to external factors, specifically falling risk sentiment lowering demand for currencies like the NZD.
Currency traders are increasingly concerned that a trade war will cause significant volatility and disruption in global markets.
Although the US is at the centre of these worries, the US Dollar has nonetheless appreciated today due to its safe haven currency status.
Because the New Zealand Dollar is seen as much riskier by comparison, NZD had fallen, to the advantage of Pound traders.
UK Manufacturing Sector Forecasts Cause GBP/NZD Exchange Rate Losses
The Pound (GBP) has lost ground to the New Zealand Dollar (NZD) today, falling to an interbank exchange rate of NZ$1.94.
This follows the release of June’s uninspiring UK manufacturing PMI.
The PMI was forecast to print at 54.0, but instead came in at 54.4. Despite this beating expectations, analysts remained unimpressed.
Commenting on the results, CIPS Group Director Duncan Brock said:
‘A gentle hush descended over the sector in June as growth of new orders was amongst the lowest in 18 months and the almost imperceptible rise in manufacturing output was more about housekeeping and clearing backlogs than tackling new business.’
New Zealand Dollar to Pound Sterling (NZD/GBP) Exchange Rate Gains Limited by NZ Growth Forecasts
While the New Zealand Dollar (NZD) has advanced ever so slightly against the Pound (GBP) today, this has been down to GBP weakness rather than NZD strength.
ANZ Bank analysts have warned that the New Zealand economy could be in for a ‘steady period’, saying:
‘We expect [the economy] will struggle to grow above trend from here.
‘Cost pressures are increasing and we expect that margin pressure will provide the catalyst needed for firms to pass through price increases, though likely in a gradual fashion.
‘Based on the balance of risks and all else equal, we expect inflation will increase gradually and that the [Reserve Bank of New Zealand interest rate] will eventually rise.
‘That said, downside risks have increased that could delay monetary policy tightening. If conditions deteriorated significantly, we expect a [rate] cut could [come] quite rapidly.’
GBP/NZD Exchange Rate Forecast: Is Pound Sterling New Zealand Dollar Volatility ahead on Services PMI?
This week, Pound to New Zealand Dollar (GBP/NZD) exchange rate movement could be driven by two more UK PMI readings, along with New Zealand business confidence readings and a dairy price auction.
The New Zealand business confidence measurement will be out this evening, and has the potential to weaken NZD if it disappoints.
Business confidence in New Zealand has been negative since a change of government in 2017, with the previous reading showing an -11% drop in sentiment.
Tuesday morning will see the next UK PMI reading, this time covering construction sector activity. As with today’s manufacturing figure, a sector slowdown is forecast.
Despite the risk of a GBP decline on poor construction data, the GBP/NZD exchange rate could remain favourable if the afternoon’s dairy price stats are disappointing.
Another dip in dairy prices will be unsupportive for the New Zealand Dollar, with milk products being a prime export earner for the country.
The week’s last major UK data release will be Wednesday morning’s services sector PMI. This could cause a GBP/NZD rally if it rises, as the services sector accounts for over 70% of total economic growth.
Of course, if risk appetitite remains weak in the face of growing trade tensions, New Zealand Dollar (NZD) exchange rates are also likely to remain under pressure.