Jump in UK Wages Offers Limited Pound New Zealand Dollar (GBP/NZD) Exchange Rate Support

UK Wage Growth Acceleration Buoys Pound New Zealand Dollar (GBP/NZD) Exchange Rate

A better-than-expected acceleration in June’s UK average weekly earnings failed to prevent the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate recovering ground.

As earnings excluding bonuses increased 3.9% on the year in June, hitting an eleven-year high, this gave investors reason to buy back into Pound Sterling (GBP) this morning.

However, the labour market data was not universally positive in nature as the unemployment rate saw a surprise uptick from 3.8% to 3.9%.

This suggests that the labour market is failing to tighten further in the face of ongoing Brexit-based uncertainty, casting fresh doubt over the strength of the economic outlook.

As a result, the positive impact of the improved wage data proved limited, preventing GBP exchange rates from staging a stronger recovery.

New Zealand Dollar (NZD) Fails to Capitalise on Food Price Rebound

Although July’s New Zealand food price index saw a sharp improvement the mood towards the New Zealand Dollar (NZD) still soured, meanwhile.

While prices jumped 1.1% on the month, suggesting increased inflationary pressure, this was not enough to spur any rally for NZD exchange rates.

As other inflation indicators have proved less positive in recent months this improvement is unlikely to be enough to alter the current outlook of the Reserve Bank of New Zealand (RBNZ).

Even though the risk of another interest rate cut in the wake of August’s sharp cut appears muted the appeal of the New Zealand Dollar remained generally weak in nature.

Pound Sterling (GBP) Vulnerable to Disappointing UK Inflation Reading

With forecasts pointing towards a fresh decline in the UK consumer price index on Wednesday, though, the GBP/NZD exchange rate could slip further.

The headline inflation rate is expected to ease from 2.0% to 1.9% on the year, dipping below the Bank of England’s (BoE) target.

This would further diminish the likelihood of BoE policymakers opting to raise interest rates in the months ahead, to the detriment of the Pound.

As political anxiety and the uncertainty surrounding Brexit fuels the case for lower interest rates any decline in inflation would increase the odds of an imminent move.

Although an easing in price pressures could lead to higher levels of consumer spending this is unlikely to be enough to shore up the Pound this week.

Resilient New Zealand Manufacturing Forecast to Boost NZD Exchange Rates

The release of July’s New Zealand manufacturing PMI could offer support to NZD exchange rates, however.

If the manufacturing sector demonstrates fresh growth at the start of the third quarter this could encourage a renewed sense of confidence in the economic outlook.

Evidence of manufacturing sector resilience may give the New Zealand Dollar a lift against its rivals, with a stronger reading increasing the odds of positive growth data.

Even so, the antipodean currency could see its downside bias worsen on Thursday night if the sector moves closer to contraction territory.

With global trade tensions looking set to persist for the foreseeable future any evidence of weakening domestic growth could weigh heavily on NZD exchange rates.

Louisa Heath

Contact Louisa Heath