Pound New Zealand Dollar (GBP/NZD) Exchange Rate Drops from Five-Week High as Market Mood Improves

Pound New Zealand Dollar (GBP/NZD) Exchange Rate Loses Gains as Risk Appetite Increases

(Updated 15:15, 6/10/21) The Pound New Zealand Dollar (GBP/NZD) exchange rate has dropped from its five-week high of NZ$1.97089 today and is currently trading around the NZ$1.9630 mark, 0.14% down from this morning’s opening levels.

The turnaround in the pair seems to have come amid a slight shift in market mood. After sliding this morning, equity markets in Europe have started edging upwards from today’s lows, suggesting a modest recovery in risk appetite.

In addition, the US ADP employment change figures beat forecasts, printing at 568,000 versus the expected 428,000. This indication of a strong recovery in the labour market of the world’s largest economy may be brightening the market mood.

However, risk sentiment has been very volatile throughout the post-Covid recovery period. Could another swing see GBP/NZD change direction again?

Original article continues below:

Pound New Zealand Dollar (GBP/NZD) Exchange Rate Firms amid Risk-Off Trade

The Pound New Zealand Dollar (GBP/NZD) exchange rate has strengthened today, hitting a five-week high, as a risk-off market mood drains demand for the riskier New Zealand Dollar (NZD).

Meanwhile, the UK’s fuel supplies continue to recover, allowing Sterling to capitalise on NZD’s weakness. GBP/NZD is currently trading at around NZ$1.9690, just below today’s five-week high of NZ$1.96941.

Pound (GBP) Firms as Fuel Supplies Continue to Improve

The Pound (GBP) has managed to strengthen against the New Zealand Dollar so far this morning, as the UK’s fuel crisis draws to an end.

Outages caused by driver shortages and panic buying have been easing in recent days after the government deployed military drivers to help deliver fuel. However, some of the hardest-hit areas – particularly in London and the South East – continued to experience significant disruption.

Now, the situation in those hard-hit areas is improving. Last night, the Petrol Retailers Association (PRA) said that 15% of petrol stations in and around London were dry, versus 20% on Monday and 22% on Sunday.

Across the rest of the UK, 86% of forecourts reported having both petrol and diesel, while 11% were dry and 3% had only one grade of fuel. With fuel supplies returning to normal, a significant headwind for the Pound is fading.

However, the UK’s construction PMI missed forecasts this morning, printing at 52.6 versus 54. At the time of writing, the report is having little effect on GBP/NZD, though it may become more of a factor as the session progresses.

New Zealand Dollar (NZD) Tumbles amid Risk Aversion

Meanwhile, the risk-sensitive New Zealand Dollar is struggling today as a shift in market mood caused it to tumble by 0.8% in overnight trade.

Equity markets across Europe and Asia are down as the recurring fears of soaring inflation and slowing growth cause anxiety among investors. Fuel and gas prices are surging again today, exacerbating fears of overinflation and driving up costs for households and businesses.

Kyle Rodda, a market analyst at IG, commented on the shift in risk appetite:

‘Stocks have rolled over in Asia trade, as market participants fall back down that proverbial wall of worry. The priority remains inflation, policy and by extension future economic growth, as fears about rising global costs and the knock on effects that’ll have on asset valuations keeps investors in price discovery mode.’

In addition, the Reserve Bank of New Zealand (RBNZ) has increased its official cash rate for the first time in seven years as it tries to curb inflationary pressures and an overheating housing market.

Investors expected the rate hike and so it had only a temporary positive effect on NZD. After briefly spiking following the decision, the ‘Kiwi’ dropped back down.

Interestingly, the move may have actually added to the risk-off market mood, thereby denting NZD exchange rates. Rodda explains:

‘Somewhat unexpectedly, the RBNZ – normally a central bank that can say plenty without moving the markets a lot – seems to have catalysed this bout of risk aversion today. As expected, the central bank hiked rates to 0.5% today, but put quite a strong emphasis on the persistent cost pressures motivating their decision in its statement, dispensing slightly with the general rhetoric from other global central banks that inflation is transitory.’

With the bearish market mood weighing on the ‘Kiwi’, GBP/NZD has managed to hit a five-week high.

GBP/NZD Exchange Rate Forecast: UK Construction PMI to Dent Sterling?

If the market mood remains downbeat, GBP/NZD may be able to hold the high ground or even make further gains.

However, the UK’s construction PMI could influence the pair. The report shows that the UK’s shortages of materials and staff are holding back the construction recovery, as are rising costs. This reminder that the country’s supply chain issues are effecting all parts of the UK economy could weigh on Sterling as the day unfolds.

Samuel Birnie

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