Pound New Zealand Dollar (GBP/NZD) Exchange Rate Struggles Near 3-Week Low after Negative UK GDP

Surprise UK Contraction Weighs Down Pound New Zealand Dollar (GBP/NZD) Exchange Rate

As the UK economy contracted -0.1% on the month in August the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate came under additional pressure.

With forecasts having pointed towards a stagnant monthly gross domestic product reading the mood towards Pound Sterling (GBP) naturally soured this morning.

Although there were some signs of resilience in the GDP report, with the three-month growth figure bettering expectations, this failed to shore up GBP exchange rates.

Comments from Bank of England (BoE) Governor Mark Carney added to the bearish atmosphere as he noted that the underlying growth trend is soft.

As Carney warned of the likelihood of further Pound volatility to come investors saw little incentive to favour the currency at this stage.

Rising Food Price Index Encourages New Zealand Dollar (NZD) Demand

Demand for the New Zealand Dollar (NZD) picked up, meanwhile, thanks to an unexpected improvement in September’s food price index.

As prices showed strong growth of 2.2% on the year this fuelled hopes that inflationary pressure within the New Zealand economy is starting to build.

While the food price index is only a limited gauge of inflation this stronger showing was still enough to shore up NZD exchange rates for the time being.

Even though markets still see a strong risk of the Reserve Bank of New Zealand (RBNZ) delivering a further interest rate cut in the coming months evidence of stronger inflation could give policymakers pause.

Hopes of potential progress at the latest set of US-China trade talks also helped to keep NZD exchange rates on a positive footing.

Improving New Zealand Manufacturing PMI Forecast to Boost NZD

The GBP/NZD exchange rate could shed further ground overnight if September’s New Zealand manufacturing PMI proves positive.

With forecasts pointing towards the headline index seeing a modest improvement from 48.4 to 49.0 worries over the outlook of the New Zealand economy could ease.

Although the manufacturing sector is expected to remain in a state of contraction, pointing towards another quarter of lacklustre growth, an uptick here may still boost NZD exchange rates.

On the other hand, if the sector sinks further into a state of decline the risk-sensitive New Zealand Dollar looks set to fall out of favour once again.

Lack of Brexit Clarity Keeps GBP Exchange Rate Outlook Muted

While no fresh UK data is set for release ahead of the weekend the Pound is still expected to see further volatility in the days ahead.

As Brexit talks between the UK and EU have come to a standstill the increased risk of a no-deal scenario may keep GBP exchange rates on the back foot as the deadline continues to draw closer.

Unless the UK government demonstrates a willingness to request an extension of the current Brexit deadline support for the Pound looks set to deteriorate.

With a sense of political and economic uncertainty looking set to hang over the UK for the foreseeable future the potential for a GBP/NZD exchange rate rally appears limited.

Louisa Heath

Contact Louisa Heath