Hopes of Brexit Progress Fails to Shore up GBP/NZD Exchange Rate
UPDATE: As Labour shadow chancellor, John McDonnell, noted that ongoing talks with Theresa May over Brexit are currently ‘constructive’ and ‘positive’ this encouraged hopes that progress is on the horizon.
Even so, this was not enough return the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate to a stronger footing ahead of the weekend.
While trade tensions between the US and EU showed fresh signs of flaring up this failed to dampen the general mood of risk appetite, keeping the New Zealand Dollar (NZD) on an uptrend.
Widened Chinese Trade Surplus Encourages Pound Sterling New Zealand Dollar (GBP/NZD) Exchange Rate Weakness
A renewed sense of market risk appetite helped to keep the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate biased to the downside this morning.
As the Chinese trade surplus widened significantly in March this encouraged investors to buy back into risk-sensitive assets such as the New Zealand Dollar (NZD).
Although the underlying details of the trade data were ultimately mixed, with imports seeing a sharp -7.6% contraction on the year, this was not enough to dent market sentiment.
The data helped to overshadow the disappointing nature of March’s New Zealand manufacturing PMI, which unexpectedly eased from 53.4 to 51.9.
With the New Zealand economy still demonstrating signs of weakness the upside potential of NZD exchange rates was naturally limited.
Brexit Uncertainty Limits Pound Sterling (GBP) Appeal
Demand for Pound Sterling (GBP), meanwhile, proved muted as anxiety over Brexit persisted.
While the UK is no longer in imminent danger of crashing out of the EU without a deal a sense of uncertainty still looks set to hang over the economy for the foreseeable future.
Until MPs can make progress towards a positive Brexit resolution GBP exchange rates are likely to remain under pressure as confidence in the economic outlook deteriorates.
If the risk of a fresh general election continues to mount this could put additional pressure on the GBP/NZD exchange rate in the coming days.
NZ Inflation Data to Provoke Fresh New Zealand Dollar (NZD) Volatility
Confidence in the New Zealand Dollar could pick up more substantially next week, however, on the back of the first quarter consumer price index data.
Forecasts point towards the inflation rate picking up from 0.1% to 0.3% on the quarter, encouraging a greater sense of optimism in the domestic outlook.
Even so, any positive impact from the quarterly data could easily be overshadowed by the headline annual inflation rate.
Investors anticipate an easing in inflationary pressure on the year, with the consumer price index expected to dip from 1.9% to 1.7%.
If inflation falls further below the Reserve Bank of New Zealand’s (RBNZ) 2% target this could increase the odds of interest rates seeing a cut in the near future.
Stronger UK Inflation May Offer Pound Sterling (GBP) Exchange Rate Boost
A boost could be in store for the GBP/NZD exchange rate on Wednesday with the release of March’s UK inflation data.
With the headline inflation rate forecast to accelerate to 2% investors could find fresh cause for confidence in Pound Sterling.
Although a higher level of inflation is unlikely to be enough to spur the Bank of England (BoE) into taking a more hawkish stance on monetary policy this could still boost GBP exchange rates.
On the other hand, if inflationary pressure fails to show signs of building this would leave the GBP/NZD exchange rate exposed to fresh selling pressure.