Pound New Zealand Dollar (GBP/NZD) Exchange Rate Fights Back despite Brexit Uncertainty

GBP/NZD Exchange Rates Rallies despite Chaotic Brexit Draft

The Pound New Zealand Dollar (GBP/NZD) exchange rate is rallying today after yesterday’s sharp fall despite the still-unfolding Brexit drama.

Sterling is pushing back against the ‘Kiwi’ (NZD) and is currently trading at an inter-bank rate of NZ$1.87, which equates to an increase of around 0.3% on its opening levels.

Despite suffering its biggest fall in the past two years on Thursday, the Pound (GBP) has managed to steady itself as there have been no further resignations from Theresa May’s Cabinet today, although it remains uncertain whether this stability will last.

On the New Zealand front, The business New Zealand purchasing managers’ index released on Thursday evening provided a bullish outlook for NZD as it showed an expansion from the previous 51.7 to 53.5, the highest reading since June.

GBP/NZD Exchange Rate Tumbles amidst Cabinet Resignations

The pairing plummeted yesterday, with the ‘Kiwi’ (NZD) taking advantage of the weakness in the UK currency caused by Brexit.

Yesterday’s weakness in the UK currency was fuelled by Brexit chaos, with multiple resignations, including those from Dominic Raab and Esther McVey causing Pound (GBP) exchange rates to fall.

It further emerged that a number of rebel MPs, led by Jacob Rees-Mogg, were moving to trigger a vote of no-confidence against the Prime Minister, Theresa May.

GBP/NZD has Potential to Narrow if G20 Summit Disappoints

Today’s slippage in the NZD/GBP exchange rate could have been aided by news suggesting the G20 Summit meeting later this month is unlikely to cause a breakthrough in US-China relations, despite previous reports of a potential thaw.

Preparation for talks between officials from the United States and China have not shown much progress, and it was predicted by Moody’s, the New York-based ratings analysis firm, that the 10% tariffs on US$200bn of Chinese goods would increase to 25% at the start of 2019.

Ann Van Praagh, managing director of the global credit strategy and research unit at Moody’s stated: ‘We don’t expect much breakthrough at G20 … If the two sides agree to anything, it will be partial and short-lived because it’s not just about tariffs. It’s about geopolitical tensions around a rising China that is challenging to the US.’

Expect Volatility in the GBP/NZD Exchange Rate as Brexit Drama Continues

The main focus for New Zealand Dollar (NZD) investors is the upcoming G20 meeting at the end of the month, where US President Donald Trump will meet with Chinese leader Xi Jinping.

If the outcome of the meeting is positive it seems likely the New Zealand Currency will benefit.

Mark Johnson, a private client manager at OMF stated: ‘The outcome of that [G20 meeting] could be key to determining the fate both New Zealand and the Australian dollar.’

The immediate fate of the Pound (GBP) lies with Brexit and whether or not Theresa May will be able to hold onto her position as Prime Minister. This is likely to be the cause of any volatility in the Pound as there is not set to be any significant UK data due for release next week.

If a vote of no-confidence is passed, it could cause extreme volatility for Sterling, as it is uncertain if there will be sufficient time to get an alternative Brexit deal before the 29 March 2019 leaving date.

With a ‘no-deal’ Brexit seeming like more of a reality, Sterling is likely to remain under pressure for the foreseeable future.

Echoing this sentiment Ulrich Leuchtmannan, a foreign exchange strategist at Commerzbank stated: ‘As long as a ‘no-deal’ remains as likely as it is, there is a risk of a Sterling depreciation spiral that is self-intensifying … Sterling volatility has woken up from its 100-year slumber and is likely to remain reactive.’

Hannah Wilson

Contact Hannah Wilson