Pound Sterling to New Zealand Dollar (GBP/NZD) Exchange Rate Plunges on US-China Trade Developments

Pound to New Zealand Dollar Exchange Rate Fails to Benefit from Brexit Speculation amid Risk-Rally

UPDATE: Demand for riskier trade-correlated currencies like the New Zealand Dollar (NZD) rose on Wednesday, amid reports that both the US and China were happy so far with ‘pleasant and candid’ trade talks.

Reports emerged today that the US and China would release statements about trade talks on Thursday. This made investors more willing to take risks and the New Zealand Dollar strengthened.

The Pound (GBP) was unable to benefit from the day’s Brexit developments.

Attempts from UK Prime Minister Theresa May to boost the popularity of her Brexit deal are not expected to lead to a jump in support, leaving investors anxious about how the vote will unfold next week.

Pound to New Zealand Dollar Exchange Rate Higher as US Dollar (USD) Strengthens

UPDATE: The US Dollar (USD) rebounded slightly on Tuesday, following four consecutive days of losses. Strength in the US Dollar made investors less willing to buy the trade-correlated New Zealand Dollar (NZD).

As a result, the Pound to New Zealand Dollar (GBP/NZD) exchange rate continued to climb above last week’s opening levels.

The New Zealand Dollar was weaker despite news that US-China trade negotiations were progressing well.

Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Climbs despite Higher Risk-Sentiment

Despite last week’s rise in global demand for riskier trade-correlated currencies like the New Zealand Dollar (NZD), the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate has been climbing this week so far.

Stronger demand for riskier currencies ultimately meant GBP/NZD was unable to sustain the advance attempts it made last week, despite briefly hitting a monthly inter-bank high of NZ$1.91.

Demand for the Pound has risen in recent sessions on reports that a group of cross-party UK MPs have tabled an amendment to prevent the government from heading for a ‘no-deal’ Brexit.

As a result of hopes that such a scenario can be avoided, the Pound (GBP) was able to advance against a sturdy New Zealand Dollar, despite the latter benefiting from risk-on trade.

Pound (GBP) Exchange Rates Strengthen on Hopes that ‘No-Deal’ Brexit Can Be Avoided

As UK Parliament reconvenes this week following a winter recess that felt too long for some anxious investors amid widespread Brexit uncertainties, the Pound (GBP) is benefitting from hopes that the UK will avoid leaving the EU without a trade deal.

MPs from across different parties, including senior members of the Conservative and Labour Parties, have reportedly joined forces in order to table an amendment in an effort to dissuade the UK government from seeking out a ‘no-deal’ Brexit.

Markets see this as a worst-case scenario for Britain’s economy.

As UK politicians have not been able to agree on how the Brexit process should unfold, the possibility of a ‘no-deal Brexit’ has kept significant pressure on Sterling over the past month.

According to Labour MP Yvette Cooper, one of the senior MPs responsible for the amendment:

‘Time is running out and this is too serious for brinkmanship.

Parliament needs to make sure there are opportunities to stop the country reaching the cliff edge by accident. This amendment helps to do just that.’

Rumours that the UK government may be in talks to delay Article 50 have also supported Sterling demand today.

New Zealand Dollar (NZD) Exchange Rates Benefits from Risk-Sentiment

The Pound to New Zealand Dollar (GBP/NZD) exchange rate may have seen a stronger gain last week if not for a late-week rise in demand for riskier trade-correlated currencies like the New Zealand Dollar (NZD).

Investors found the risky ‘Kiwi’ more appealing following news that US-China trade negotiations would resume this week, as well as some solid Chinese data and news that China’s central bank had introduced easing measures to support the economy.

On top of this, rising market expectations that the Federal Reserve will be flexible and patient on US interest rates rather than rushing to hike rates in 2019 made investors even more willing to take risks.

However, amid a lack of strong New Zealand data in recent sessions, as well as its rival the Australian Dollar (AUD) typically benefitting more from optimistic China news, the New Zealand Dollar’s strength has been limited.

This made it easier for GBP/NZD to hold its ground today.

Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Investors Anticipate Political Developments

This week’s UK and New Zealand data is unlikely to be influential compared to current political news and developments, leaving investors focused on anticipated political developments.

Some of the data to keep an eye on however, includes Friday’s New Zealand building permits from November, as well as UK Gross Domestic Product (GDP) growth data and trade balance data also from November.

The news most likely to make waves in GBP/NZD in the coming days would be any major Brexit developments, particularly as next week’s anticipated Parliament vote on Theresa May’s deal draws nearer.

The vote is still expected to take place on 15 of January, and if it succeeds, the UK will have secured May’s Brexit deal as its means of withdrawing from the EU. If it fails, fresh uncertainties will open up.

New Zealand Dollar (NZD) movement will continue to be influenced by risk-sentiment, as well as US-China trade tensions.

If there are no notable political developments, the Pound to New Zealand Dollar (GBP/NZD) exchange rate may be more likely to react to upcoming data instead.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard