GBP/NZD Exchange Rate Continues to Climb as Brexit Outlook Improves
(Updated 16:00, 11/11/2021) The Pound New Zealand Dollar (GBP/NZD) exchange rate continued to firm throughout this afternoon as GBP received further tailwinds from optimistic Brexit comments.
The attitude amongst those involved in negotiations appears upbeat, as Ireland’s Foreign Minister Simon Coveney remarked that there is still some time to make sure that negotiations on the Northern Ireland protocol will work.
Earlier in the session, an EU source communicated that ‘the percentage of [border] controls removed could yet increase, through negotiation’ – it appears, however, that this concession is dependent upon UK cooperation.
According to Maroš Šefčovič, the European Commission vice-president, a deal won’t be possible unless the UK drops its ‘unattainable’ demands on the role of European judges. Šefčovič will meet again tomorrow with Lord Frost, the Brexit minister, for the fourth consecutive week.
Ahead of the talks, a senior Commission official has accused Lord Frost of taking a ‘significant step in the wrong direction’. The comment likely refers to Frost’s threats of invoking article 16 – a measure applicable in situations where the UK or EU considers ‘economic, societal or environmental difficulties’ liable to persist.
Subsequently, Frost has stepped back from his former position, saying:
‘Although we have been talking for nearly four weeks, there remain possibilities that the talks have not yet seriously examined… there is more to do and I certainly will not give up on this process unless and until it is abundantly clear that nothing more can be done.’
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Pound New Zealand Dollar Exchange Rate Climbs on UK Economic Growth
The Pound New Zealand Dollar (GBP/NZD) exchange rate rocketed this morning after the publication of the UK’s preliminary GDP figures. While quarterly GDP missed expectations, growth in September exceeded forecasts.
At the time of writing, GBP/NZD is trading at N$1.9097, up 0.6% from today’s opening levels.
Pound (GBP) Trades Mixed Following GDP Release
The Pound (GBP) is trading in a mixed range this morning, despite making significant gains against the New Zealand Dollar (NZD).
UK GDP missed forecasts for the third quarter, as a contraction in manufacturing activity dragged upon overall growth. Recent supply constraints slowed the manufacture of rubber and plastics, transport equipment and sales and repair of motor vehicles.
Headwinds are likewise reflected in September’s manufacturing production report: factory output in the UK increased 2.8% year-on-year, missing market expectations of 3.1%.
On a monthly basis, however, GDP advanced further than expected, demonstrating growth of 0.6%. Services output boosted the reading as human health activities soared 6.4%.
Suren Thiru, head of economics at the British Chambers of Commerce, believes the rebound in monthly output reflects a temporary boost, cautioning that:
‘Business investment remains disappointingly short of pre-pandemic levels… limiting the UK’s ability to raise productivity and deliver a sustainably high wage economy.’
‘The third quarter slowdown is likely to be the start of a sustained period of sluggish growth as staff shortages, supply chain disruption and surging inflation increasingly stifles economic output.’
New Zealand Dollar (NZD) Corrects Down from Month-Long Rally
The New Zealand Dollar is trading down this morning, correcting October’s rally. According to economists at Westpac, ‘Kiwi’s decline should slow by 0.7000 and bounce back to a multi-month rally by the end of the year.
Also weighing upon NZD, US Dollar strength in the wake of yesterday’s CPI report reinforced the notion that the Federal Reserve will tighten monetary policy sooner rather than later. The hawkish policy of the Reserve Bank of New Zealand (RBNZ) presents less of an advantage as other central banks follow suit.
Furthermore, the New Zealand Dollar may not be able to reap substantial benefits even when the RBNZ does hike interest rates, on account of high mortgage rates.
According to economists at ANZ:
‘The NZD has the potential to respond very positively to the next couple of RBNZ OCR hikes (especially if one of them is 50bps), but as we head into 2022, with mortgage rates already well higher and the Fed then likely eyeing hikes, that timing mismatch could be a real challenge for the NZD.’
GBP/NZD Exchange Rate Forecast: Business PMI to Influence Trading?
Looking ahead, New Zealand’s business PMI for the month of October may influence the Pound New Zealand Dollar exchange rate. The data will be released this evening, potentially inspiring movement into tomorrow.
A lack of data on Friday leaves the pairing to trade on external factors: a speech from the Bank of England (BoE)’s Jonathan Haskel could impact trading sentiment.