Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Plummets to Worst 2019 Levels

Pound to New Zealand Dollar Exchange Rate down on Brexit Fears, New Zealand Data

The Pound (GBP) has been broadly unappealing on Brexit fears since markets opened this week, leaving a resurgent New Zealand Dollar (NZD) to more easily sustain major gains and push the Pound to New Zealand Dollar (GBP/NZD) exchange rate to its worst levels all year.

Despite underlying global trade tensions, and speculation of further Reserve Bank of New Zealand (RBNZ) interest rate cut bets, GBP/NZD has been falling for most of the past month.

This trend continued last week when GBP/NZD tumbled from the interbank level of 1.89 to 1.87 throughout the week.

This week, GBP/NZD has already seen even steeper losses, and the interbank level currently trends near the level of 1.85 – the worst level for GBP/NZD since December 2018.

While some of today’s UK data beat expectations, it was not enough to offset the Brexit concerns battering the British currency. Meanwhile, the New Zealand Dollar benefitted from steady New Zealand data and weakness in rivals.

Pound (GBP) Exchange Rates Undermined by Brexit Backstop Jitters

Despite some stronger than expected UK data published this morning, the Pound (GBP) continued to see broad losses against major rivals on political and Brexit fears.

With just a week left until the likely conclusion of Britain’s Conservative Party leadership election, frontrunner Boris Johnson isn’t expected to see much in the way of obstacles to his premiership.

This has made investors even more anxious about the possibility of a no-deal Brexit, as Johnson has indicated he would rather embrace this outcome than delay Brexit again.

Both Johnson and his opponent in the contest, Jeremy Hunt, have indicated this week that they would not accept an EU deal that included the controversial Irish backstop plan.

As the EU has repeatedly indicated it would not offer a plan without some kind of backstop, this has made investors even more anxious that the new government could crash Britain out of the EU without a deal.

Brexit jitters also continued to overshadow UK data.

Even though wages were better than expected in today’s job market report, a lower than expected employment change figure caused concern that businesses weren’t able to find enough fresh staff, or that hiring was becoming more cautious due to Brexit jitters.

New Zealand Dollar (NZD) Exchange Rates Steady Following New Zealand Inflation Report

Already bolstered by weakness in rivals like the US Dollar (USD), as well as Federal Reserve interest rate cut bets, the New Zealand Dollar (NZD) has found fresh support in New Zealand data this week.

While this morning’s New Zealand Consumer Price Index (CPI) inflation rate results from Q2 2019 were unsurprising, they were enough to help keep investors bullish on the New Zealand Dollar.

New Zealand inflation rose from 0.1% to 0.6% quarter-on-quarter as expected, while the yearly figure rose from 1.5% to 1.7%.

Still, while NZD climbed on the data, this was more due to RBNZ interest rate cut expectations being softer than rate cut expectations from the Federal Reserve.

The data had no real impact on RBNZ rate cut bets, and markets still widely expect the RBNZ to cut interest rates again by September.

Pound to New Zealand Dollar (GBP/NZD) Exchange Rate to Remain Under Pressure amid Brexit Fear

While some investors may soon opt to buy the Pound to New Zealand Dollar (GBP/NZD) exchange rate back from its cheapest levels all year in profit taking, the Pound’s (GBP) potential for gains is limited as Brexit fears show no signs of softening.

Britain’s Conservative Party leadership contest will end next week, and investors are increasingly anxious that Boris Johnson, likely to be the next Prime Minister, will not do much to avoid a no-deal Brexit.

This could leave the Pound increasingly driven by UK political developments towards the end of the week, but upcoming domestic data could be influential as well.

Concerns persist about the impact the Brexit process is having on Britain’s economy. If tomorrow’s June inflation data or Thursday’s June retail sales stats disappoint investors, Bank of England (BoE) interest rate cut bets could rise and put further pressure on Sterling.

As for the New Zealand Dollar, with a quieter New Zealand economic calendar for the rest of the week, US-China trade developments and global Central Bank speculation could influence the ‘Kiwi’ and the Pound to New Zealand Dollar (GBP/NZD) exchange rate.

Josh Jeffery

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