Pound Sterling to New Zealand Dollar (GBP/NZD) Exchange Rate Recovers Ground as UK Growth Defies Brexit Anxiety

Positive UK Growth Data Boosts GBP/NZD Exchange Rate

UPDATE: Unexpectedly positive UK gross domestic product data encouraged the GBP/NZD exchange rate to return to a positive footing today.

Markets were relieved as the UK economy avoided stagnation in February, suggesting that Brexit uncertainty has been a more limited drag on growth than anticipated.

Even so, anxiety over Brexit continued to limit Pound Sterling’s upside potential ahead of the latest EU leaders summit.

GBP/NZD Exchange Rate Falls even as EU Proposes Pushing Back Brexit Deadline to End of 2019

UPDATE: Reports that the EU is prepared to extend the Brexit deadline until the end of the year failed to shore up the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate this afternoon.

Demand for Pound Sterling continued to deteriorate instead, with Conservative MPs already pushing back against the proposal.

With Brexit uncertainty set to persist for longer support for GBP exchange rates proved largely limited.

Pound Sterling New Zealand Dollar (GBP/NZD) Exchange Rate under Pressure ahead of Brexit Deadline

As Theresa May engaged in fresh discussions with EU leaders, seeking another short extension to the Brexit deadline, the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate remained biased to the downside.

With mere days left before the current Brexit deadline the increased risk of a no-deal scenario has left Pound Sterling (GBP) under pressure as a sense of uncertainty prevails.

As EU officials continued to express a preference for a longer extension, failing to see any material change in the UK’s position, GBP exchange rates shed further ground.

While markets still hope to see the UK avoid an abrupt no-deal Brexit this was not enough to shore up the GBP/NZD exchange rate today.

New Zealand Dollar (NZD) Strength Limited as Economic Activity Disappoints

Last night’s ANZ truckometer failed to offer support to the New Zealand Dollar (NZD), meanwhile, as the data pointed towards weaker economic activity.

As the index contracted -2% on the month in March this raised fresh concerns over the health of the New Zealand economy, suggesting a continued slowdown in the face of global trade tensions.

Coupled with a general uptick in market risk aversion, driven by the increasing threat of a US-EU trade spat, this left NZD exchange rates on a weaker footing this morning.

With the US threatening to impose fresh tariffs on a number of EU products the risk of fresh global trade disruption saw the New Zealand Dollar soften.

GBP/NZD Exchange Rate Vulnerable to UK GDP Stagnation

Even so, the GBP/NZD exchange rate could come under increased pressure tomorrow with the release of February’s raft of UK production and growth data.

Forecasts point towards a fresh slowdown in the monthly gross domestic product, with investors anticipating a stagnation.

With signs already suggesting a weaker first quarter GDP reading confidence in the domestic outlook could take a blow if the economy stalls, leaving the Pound exposed to fresh selling pressure.

However, even if growth and production figures surprise to the upside the GBP/NZD exchange rate may still struggle to return to a stronger footing.

As long as the UK remains at risk of crashing out of the EU without a deal on Friday demand for the Pound is unlikely to pick up.

Softening NZ Food Price Index Set to Weigh Down New Zealand Dollar (NZD) Exchange Rates

The appeal of the New Zealand Dollar could deteriorate further, though, if March’s food price index also underwhelms.

NZD exchange rates may slump sharply on the back of a weaker food price index reading, with any deterioration here pointing towards softer inflationary pressure.

With the Reserve Bank of New Zealand (RBNZ) already biased towards an interest rate cut any evidence of weaker inflation could give policymakers additional cause for dovishness.

On the other hand, an uptick in food prices would offer investors incentive to favour the higher-yielding New Zealand Dollar over its rivals.

Any further deterioration in global trade conditions, though, could still offer the GBP/NZD exchange rate support in the days ahead.

Louisa Heath

Contact Louisa Heath