Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Slips from 3-Month-Highs Despite Stronger UK Services PMI
Investors caused a drop in the Pound to New Zealand Dollar (GBP/NZD) exchange rate on Wednesday, as the New Zealand Dollar (NZD) rebounded from a Tuesday dip and the Pound (GBP) was pressured by Brexit uncertainties.
Wednesday saw the publication of Britain’s August services PMI from Markit, which actually beat forecasts and rose from 53.5 to 54.3.
However, the report also indicated that Britain’s economic outlook was filled with uncertainties due to Brexit and global trade jitters. Analysts from Markit noted that UK economic activity was likely to worsen in the short-term as a result.
With no notable UK or New Zealand data due for publication now until next week, GBP/NZD is more likely to be driven by potential shifts in Brexit news and risk-sentiment for the remainder of the week.
Pound to New Zealand Dollar (GBP/NZD) Steadies Near Best Levels on NZD Weakness
UPDATE: While driven more by New Zealand Dollar (NZD) weakness than any particular strength in the Pound (GBP), the Pound to New Zealand Dollar (GBP/NZD) did benefit from some news relating to the Bank of England (BoE).
Investors became more hopeful that BoE Governor Mark Carney would extend his term beyond 2019, potentially until 2020 or even 2021, following comments from Carney on Tuesday.
This news helped GBP/NZD to trend nearer its best levels since May. GBP/NZD could see even further support on Wednesday if Britain’s upcoming services PMI report impresses investors.
Pound to New Zealand Dollar Exchange Rate Recovers from Monday Dip on NZD Weakness
While Brexit fears revived on Monday, the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate’s dip proved to be short-lived. Due to a stronger Australian Dollar (AUD) and Bank of England (BoE) speculation, the pair recovered on Tuesday.
Thanks to a combination of Brexit hopes and risk-aversion, GBP/NZD surged from the interbank level of NZ$1.92 to NZ$1.95 last week.
This week so far, GBP/NZD has briefly dipped to NZ$1.94 on Monday, but has since recovered. On Tuesday morning, GBP/NZD even briefly touched an interbank high of NZ$1.96 for the first time since May.
Sterling’s (GBP) recovery was limited by persistent Brexit uncertainties, but ultimately GBP/NZD is trending near its best levels in months at the time of writing due largely to broad-based weakness in the New Zealand Dollar (NZD).
Pound (GBP) Exchange Rates Find Support on Bank of England (BoE) Speculation
Investors sold the Pound (GBP) on Monday in reaction to perceived disagreements and obstacles facing the UK government’s Brexit plans.
UK Prime Minister Theresa May has said the government will stand its ground on the elements of its Brexit plan that are in the UK national interest.
However, EU Chief Negotiator Michel Barnier has criticised key segments, worsening concerns that persistent disagreements could prevent an agreement in time for the formal Brexit date next year.
On Tuesday the Pound’s selloff slowed as separate speculation rose that Bank of England (BoE) Governor Mark Carney could be pressured to extend his term at the bank.
Carney’s term began in 2013, but he had originally planned to step down in 2019 – two years short of the typical 8-year term for BoE Governors.
Reports were circulating the UK government would try to persuade Carney to remain in the position until at least 2020 in order to guide UK monetary policy through the Brexit process.
New Zealand Dollar (NZD) Exchange Rates Knocked by Rival Strength
Despite a lack of notable domestic influences in New Zealand this week, the ‘Kiwi’ (NZD) has plummeted. Weakness in the New Zealand Dollar was the primary cause for the Pound to New Zealand Dollar (GBP/NZD) exchange rate’s Tuesday recovery.
Investors sold the New Zealand Dollar as its rival, the Australian Dollar (AUD), recovered slightly from a highly bearish week last week.
The Reserve Bank of Australia (RBA) was not as dovish as feared in its September monetary policy decision, despite recent Australian political turbulence and higher mortgage rates from major Australian banks.
As the RBA was more neutral in its outlook than analysts expected, the Australian Dollar (AUD) was bought back from its recent lows. Investors opted to sell the New Zealand Dollar on risk-aversion instead of the ‘Aussie’.
Concerns about US-China trade tensions, as well as concerns that the Reserve Bank of New Zealand (RBNZ) could be edging towards an interest rate cut instead of a hike, have kept the New Zealand Dollar unappealing over the past month.
Pound to New Zealand Dollar (GBP/NZD) Forecast: Political Developments and UK PMI in Focus
Besides the UK’s anticipated August services PMI, due for publication on Wednesday, Britain and New Zealand’s economic calendars will be relatively quiet until next week.
As services make up a notable chunk of Britain’s economic activity, Markit’s latest UK services PMI could give investors a better idea of how the economy performed last month.
However, Brexit uncertainties are likely to overshadow any results as investors remain anxious about whether or not the UK and EU will be able to agree a post-Brexit deal.
As a result, while Britain’s services data could be influential, GBP/NZD is more likely to be influenced by upcoming political developments.
Other political developments, largely revolving around US trade relations, are more likely to drive the New Zealand Dollar.
If US-China trade war fears worsen, or if US President Donald Trump continues with his protectionist rhetoric, the Pound to New Zealand Dollar (GBP/NZD) exchange rate could be in for even further highs.