Pound New Zealand Dollar Exchange Rate Holds Steady as Brexit Fears Hold Back Sterling

GBP/NZD Exchange Rate Rangebound, UK Manufacturing PMI Faces ‘Long Road’ of Recovery

The Pound New Zealand Dollar (GBP/NZD) exchange rate held steady today, with the pairing currently trading around NZ$1.965 due to ongoing fears over the UK’s economy post-Brexit.

This follows yesterday’s release of the UK Markit Manufacturing PMI for December, which undercut forecasts at 47.5 and left markets feeling jittery as the British economy continues to sink ahead of Brexit on the 31st January.

Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply, was downbeat in his analysis, saying:

‘[I]t still feels like a long road ahead for manufacturing to recover its losses from this year and there will still be some obstacles to overcome in 2020.’

Meanwhile, today saw the release of the BRC Shop Price Index figure for November, which fell by -0.4% due to weak demand, further weakening the GBP/NZD exchange rate as British markets remain cautious at the beginning of the new year.

Helen Dickinson, BRC Chief Executive, commented:

‘Shop prices continued to fall in December as receding inflationary pressures, weak consumer demand and intense competition combined to keep price increases at bay. 2019 has been a particularly challenging year, with historically weak sales growth.’

NZD/GBP Exchange Rate Steady as US-China Trade Deal Eclipsed by US-Iran Conflict

The New Zealand Dollar (NZD) struggled to gain on the Pound (GBP) today as US-China trade developments have been eclipsed by US President Donald Trump’s ordered airstrike on Iran, escalating tensions between the two countries and threatening geopolitical unrest.

‘Kiwi’ traders are becoming increasingly concerned that US-China trade talks could be put on hold or delayed, with the US now facing potential conflict with Iran in the near-term.

Meanwhile, concerns over China’s economy are also beginning to haunt NZD investors, after yesterday saw the Chinese Caixin Manufacturing PMI for December fall below consensus from 51.8 to 51.5.

Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group, commented:

‘China’s manufacturing economy continued to stabilize in December, although the expansion in demand was not as strong as the previous two months… Subdued business confidence was a major factor behind the economic slowdown this year.

‘[However, as] the phase one trade deal between China and the U.S. has sent out positive signals, there is room for a recovery in business confidence, which should be able to help stabilize the economy.’

With China being New Zealand’s largest trading partner, this caused some concern for investors and limited some of the appeal of the risk-sensitive New Zealand Dollar.

GBP/NZD Outlook: Could NZD Rise on Further Signs of a January US-China Trade Deal?

Looking ahead to next week, New Zealand Dollar (NZD) investors will be awaiting Monday’s publication of the fourth quarter’s NZIER Business Confidence figure, with any signs of improvement boosting the NZD/GBP exchange rate as the NZ economy shows signs of improvement.

Monday will also see the release of the UK Markit Services PMI figure for December, which is expected to improve from 49 to 49.2. However, with the index set to remain firmly mired in contraction territory, this is unlikely to improve the Pound.

US-China trade developments will continue to drive the GBP/NZD exchange rate into next week, with any signs of a 15th January phase one trade deal between the two superpowers being signed off benefiting the risk-sensitive New Zealand Dollar.

David Moore

Contact David Moore