Pound New Zealand Dollar (GBP/NZD) Exchange Rate Muted as Covid-19 Vaccine Hopes Rise

Covid-19 Vaccine Hopes Keep Pound New Zealand Dollar Exchange Rate on Narrow Trend

With trading volumes thin in the penultimate trading session of 2020 the Pound to New Zealand Dollar (GBP/NZD) exchange rate found some limited support.

Reports that the AstraZeneca Covid-19 vaccine could soon see approval for use in the UK helped to fuel a fresh sense of optimism among investors.

Although the UK economy appears set to face increased pressure thanks to the tightening of social restrictions over the Christmas break the prospect of a greater vaccine rollout gave Pound Sterling (GBP) a boost.

Investors also took some encouragement from the fact that December’s Nationwide housing price index delivered a stronger performance than anticipated.

With the housing market holding up, even in the face of ongoing Covid-19 disruption, worries over the wider economic outlook took a temporary backseat.

Market Risk Appetite Limits NZD Exchange Rate Downside

Even so, the New Zealand Dollar (NZD) remained on a generally positive footing against its rivals thanks to the lingering sense of market risk appetite.

The relative weakness of the US Dollar (USD) continued to buoy demand for the risk-sensitive asset as concerns over the health of the global economy eased.

As November’s US advance goods trade balance showed a greater-than-expected widening of the deficit this offered an additional boost to the antipodean currency.

With safe-haven demand limited NZD exchange rates maintained an uptrend, even in the absence of any fresh New Zealand economic data releases.

Signs of Chinese Manufacturing Resilience to Lift New Zealand Dollar

Market risk appetite could gain a fresh boost on Thursday, though, as long as December’s Chinese manufacturing PMI proves resilient.

While forecasts point towards the headline PMI dipping from 56.4 to 56.0 on the month this would still represent a solid month of growth for the sector.

As long as the world’s second largest economy can demonstrate continued strength, indicating a sustained recovery from the Covid-19 crisis, this could give markets a fresh injection of bullishness.

A positive showing from the Chinese manufacturing data may see the GBP/NZD exchange rate come under pressure, with demand for higher-yielding assets such as the New Zealand Dollar set to rise.

UK PMIs Forecast to Offer GBP/NZD Exchange Rate Support

Fresh volatility is likely in store for the GBP/NZD exchange rate next week with the release of the finalised UK manufacturing and services PMIs for December.

Confirmation that both sectors saw a modest improvement in activity in the final month of the year could offer the Pound a leg up against its rivals.

On the other hand, any downward revision to the PMIs could see GBP exchange rates trending lower once again as doubts over the health of the UK economy persist.

Any further signs of disruption in the wake of the Brexit transition period’s end may also put some pressure on the GBP/NZD exchange rate in the coming days.

Louisa Heath

Contact Louisa Heath