Pound Rises Versus New Zealand Dollar on Reports EU May Be Preparing UK-Wide Customs Union
UPDATE: After volatile movement on Monday and most of Tuesday amid the latest Brexit uncertainties, reports suggesting a new solution for the issue of Ireland’s border gave the Pound to New Zealand Dollar (GBP/NZD) exchange rate some support.
GBP/NZD climbed by almost a third of a cent on Tuesday afternoon, following a report that the EU will offer UK Prime Minister Theresa May a UK-wide customs union.
According to the report, it would need to be negotiated separately to the Brexit withdrawal deal.
The news only had limited impact on Sterling strength, amid concerns that EU plans for how to resolve the Ireland border issue will face too much opposition among UK politicians.
Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Hits 3-Week-Low
UPDATE: On Monday afternoon, investors are causing the Pound to New Zealand Dollar (GBP/NZD) exchange rate to sink in response to news that the Democratic Unionist Party (DUP) would block the EU’s Northern Ireland Brexit backstop plan.
The DUP is part of a coalition propping up UK Prime Minister Theresa May’s government. This rebellion from a government ally made investors panic that in-fighting could worsen the chances of a Brexit deal being reached.
GBP/NZD has fallen as a result and is currently trading near the inter-bank level of NZ$1.97.
Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Edges Lower but Risk-Sentiment Continues to Improve
Following two weeks of falls, the Pound to New Zealand Dollar (GBP/NZD) exchange rate may be in for further losses this week as the latest Brexit developments have largely unimpressed investors.
Last week alone, GBP/NZD fell by over three cents amid Brexit uncertainties and rising market demand for riskier trade-correlated currencies like the New Zealand Dollar (NZD).
GBP/NZD fell from the inter-bank level of NZ$2.02 to NZ$1.98 throughout the week and is currently trending near the level of NZ$1.97 as risk-sentiment continues to rise.
While Pound to New Zealand Dollar exchange rate losses today have been minimal, the pair is weaker due to concerns that Brexit negotiations could still fall through, as well as optimism about China boosting demand for trade-correlated currencies like the New Zealand Dollar.
Pound (GBP) Exchange Rates Fail to Find Fresh Support on Claims of Brexit Progress
Concerns about Britain’s domestic politics, as well as uncertainties about a lack of progress on Ireland’s border post-Brexit, have left the Pound (GBP) looking unappealing today.
UK Prime Minister Theresa May is expected to tell the House of Commons that a UK-EU Brexit deal has been 95% completed, but investors remain more concerned about other issues.
Ireland’s border remains a highly contentious issue and it appears there has been no notable progress.
On top of this, concerns are rising that Theresa May could face a leadership challenge if she does not assuage backbenchers in her Conservative Party.
Essentially, despite May’s claims of progress, too many concerns remain about negotiations potentially falling through.
New Zealand Dollar (NZD) Exchange Rates Benefit from Strengthening Chinese Markets
Risk-correlated currencies like the New Zealand Dollar (NZD) have been more appealing in recent weeks, as fears about the potential impact of a US-China trade war lighten and Chinese markets recover.
As China is one of New Zealand’s biggest trade partners, Chinese markets strengthening have caused risk-sentiment to keep climbing which has supported the New Zealand Dollar.
China’s government indicated on Monday that it would introduce more economic stimulus, which boosted market confidence. According to Kit Juckes from Societe Generale:
‘Reassurance from the Chinese leadership that they will support the economy have triggered the biggest one-day increase in equity indices since 2015 and has given markets everywhere a risk-friendly bias to start the week.’
The New Zealand Dollar also continues to find support from last week’s impressive inflation figures.
Pound to New Zealand Dollar Outlook: GBP/NZD Could See Further Losses on Risk-Sentiment
As market risk-sentiment gradually rises and Brexit developments fail to give the Pound much of a boost, the Pound to New Zealand Dollar (GBP/NZD) exchange rate could be in for another week of losses.
The only thing that could really bolster the Pound (GBP) at this point would be a hugely significant development on Brexit.
As November approaches without a deal being finalised, investors are anxious that UK-EU Brexit negotiations could collapse. Pound movement could even remain in limbo until a deal is either finished or falls through.
Upcoming UK data is unlikely to be hugely influential this week. As a result, if risk-sentiment continues to rise and upcoming New Zealand trade balance data impresses the New Zealand Dollar (NZD) could take advantage of Pound weakness.
However, if New Zealand trade data disappoints it could worsen trade war jitters and the Pound to New Zealand Dollar (GBP/NZD) exchange rate could more easily avoid further losses.