The GBP/NZD exchange rate slumped sharply after the Reserve Bank of New Zealand (RBNZ) signalled its intention to remain on hold unless the economic impact of the Wuhan coronavirus outbreak proves larger than expected.
Last Week: Easing Fears Over Wuhan Coronavirus Outbreak Boost New Zealand Dollar (NZD)
Global anxiety over the coronavirus strain showed signs of easing as the infection rate appeared to ease and Chinese factories began to return to work.
This encouraged a greater sense of market risk appetite, benefitting the New Zealand Dollar as fears over the disease’s ultimate impact on the global growth rate diminished.
An uptick in the first quarter RBNZ two-year inflation expectation survey added to the positive mood of NZD exchange rates, reducing bets that the central bank could loosen monetary policy this year.
Although January’s finalised UK manufacturing and services PMIs bettered expectations this was not enough to boost the GBP/NZD exchange rate for long.
Three Things to Watch out for This Week
- New Zealand Manufacturing PMI
Demand for the New Zealand Dollar could strengthen further on Thursday if January’s manufacturing PMI rebounds as forecast.
A return to positive growth territory for the manufacturing sector would limit worries over the outlook of the New Zealand economy, encouraging hopes of a stronger first quarter.
- New Zealand Food Price Index
NZD exchange rates may struggle to hold onto their positive footing on the back of a weaker food price index, however.
Evidence that inflationary pressure eased in January could give investors incentive to sell out of the New Zealand Dollar, taking advantage of recent gains.
- New Zealand Services PMI
Signs of resilience within the New Zealand services sector could see the GBP/NZD exchange rate drop back towards its recent fortnightly lows.
Unless the sector shows signs of slowing the mood towards the New Zealand Dollar looks set to improve further over the weekend.
GBP/NZD Exchange Rate Outlook
The continued lack of certainty over the UK’s future relationship with the EU could help to keep the GBP/NZD exchange rate on the back foot, especially if the resurgence in market risk appetite lingers.