Pound New Zealand Dollar (GBP/NZD) Exchange Rate Falls on New Zealand Credit Rating Upgrade

GBP/NZD Exchange Rate Slides as UK Manufacturing Worst Since 2016

The Pound New Zealand (GBP/NZD) exchange rate is down by over -0.5% today, and is currently trading around NZ$1.8863 on the inter-bank market.

Sterling (GBP) struggled against the New Zealand Dollar (NZD) today after the publication of UK Markit manufacturing PMI figures for January, which fell below-expectation to 52.8 – their worst plunge since July 2016.

This has caused increasing concern that UK manufacturing could slide into a recession, with Rob Dobson, a director at HIS Markit, commenting:

‘Based on its historical relationship against official data, the January survey is consistent with a further solid contraction of production volumes, meaning manufacturing will likely act as a drag on the economy in the first quarter.’

The New Zealand Dollar, meanwhile, has strengthened on the Pound today after Standard & Poor’s (S&P) upgraded New Zealand’s credit outlook to ‘positive’ last night – hiking it up to its second‑highest at AA+.

S&P said in a statement:

‘The positive outlook on the long-term ratings on New Zealand reflects our view that the general government budget could achieve a surplus in the early 2020s… This would reduce net general government debt and provide additional resilience to macroeconomic or financial sector risks.’

NZD has remained strong despite a lack of notable New Zealand data releases today.

Nevertheless, the publication of Chinese Caixin manufacturing PMI figures for January took a worse-than expected downturn at 48.3 – drawing Chinese manufacturing into further contraction, and muting some of NZD’s gains.

Pound New Zealand Dollar (GBP/NZD) Exchange Rate Falls as UK-EU in Deadlock over Irish Backstop

Pound investors are becoming increasingly cautious as Prime Minister Theresa May readies to confront the EU on the Irish backstop issue.

This is despite the EU stating that it will not renegotiate this crucial aspect of the Brexit deal, even though the House of Commons’ insistence on the issue – causing a mounting deadlock between the EU and the UK, and further stoking fears of a Brexit no-deal.

GBP traders are remaining apprehensive as the UK’s ‘divorce bill’ for leaving the EU now mounts to £39 billion, haunting market confidence and weakening the GBP/NZD exchange rate.

NZD/GBP Exchange Rate Rises as US-China Trade Talks Make ‘Tremendous’ Progress

Last tonight saw the publication of New Zealand’s ANZ Roy Morgan consumer confidence figures for January, which remained stable at 122.

‘Kiwi’ traders, however, have been buoyed on the news that US-China trade talks are making ‘tremendous’ progress, according to US President Donald Trump.

Robert Carnell, ING’s Chief Economist, emphasised the urgency of these trade talks, commenting:

‘[Following the] terrible decline in the Caixin PMI index from 49.7 in December to only 48.3 in January shows just how important it is for China and the US to secure a trade deal. If nothing else, a deal should prevent the near-term imposition of higher tariffs.’

As New Zealand’s economy is tied closely to China’s – being its biggest trading partner – any signs of a deal between the US and China improves market sentiment in the risk-sensitive ‘Kiwi’.

GBP/NZD Forecast: Pound Could Plummet if EU Rejects May’s Brexit Deal

GBP investors will be looking forward to Monday next week which will see the publication of UK construction PMI figures for January, with any signs of an increase likely to provide Sterling with some much-needed uplift.

NZD traders, however, will be awaiting Sunday’s publication of New Zealand’s building permits for December.

Sunday will also see the publication of Chinese Caixin services PMI which is expected to decrease, potentially dampening confidence in the ‘Kiwi’ as its biggest trading partners’ economy continues to show signs of slowing down.

Asian markets, meanwhile, will be closed on Monday due to Chinese New Year Eve.

Sterling investors, however, will be looking further ahead to Thursday next week, which will see the Bank of England release its interest rate decision, which is expected to remain static at 0.75%.

Political debates between the UK and EU will likely determine the GBP/NZD exchange rate in the coming week, with any signs that the EU is unwilling to accept May’s newly amended Brexit deal seeing GBP potentially plummet against the ‘Kiwi’.

John Cameron

John studied economics at Cambridge University and later became an MSTA qualified Technical Analyst. He began working for TorFX almost a decade ago and now holds a Senior Account Manager position. As well as lending his clients support and guidance, John has produced market commentary and detailed exchange rate analysis for a number of online publications.

Contact John Cameron