The Pound New Zealand Dollar (GBP/NZD) exchange rate rallied to a nine-day high last week after the UK’s services PMI was revised significantly higher.
So far this week, GBP/NZD briefly fell to brush its lowest levels since May before quickly bouncing back, as the violence in Israel and Gaza infuses the markets with volatility.
What’s Been Happening: GBP/NZD Rallies as UK Data Beats Expectations
After a wobbly start to the week, the GBP/NZD exchange rate began to climb higher.
A dovish interest rate decision from Australia’s central bank raised expectations that the Reserve Bank of New Zealand (RBNZ) would also opt to leave interest rates unchanged. This, along with the New Zealand Dollar’s (NZD) positive correlation with a weakening Australian Dollar (AUD), weighed on the ‘Kiwi’.
The RBNZ did indeed choose to leave its monetary policy untouched, putting further pressure on the New Zealand Dollar.
Meanwhile, the Pound (GBP) enjoyed support on Wednesday after the UK’s final services PMI for September was revised significantly higher. Although activity still contracted last month, it wasn’t as bad as feared.
Sterling struggled to hold on to its gains, however, as an improving market mood boosted the risk-sensitive ‘Kiwi’.
The GBP/NZD pairing then ended the session trading in a narrow range amid a lack of data on both sides, although the Pound was up from the week’s opening levels.
Three Things to Watch Out for This Week
- UK GDP
Forecasters expect the UK economy to have recovered slightly in August, printing 0.2% growth in GDP after July’s 0.5% contraction. This modest improvement could lend GBP support.
- New Zealand PMI
New Zealand’s manufacturing PMI for September is out on Thursday. Although economists expect a slight improvement, another weak score could dent NZD.
- Risk Appetite
The recent attack by Hamas on Israel has led to a huge escalation of violence in the Middle East. If the conflict spreads, global risk aversion could weigh heavily on the ‘Kiwi’.
GBP/NZD Forecast
We could see Sterling strengthen against the New Zealand Dollar this week, if economic data prints as expected and markets remain risk averse. However, if the Hamas-Israel conflict pushes up commodity prices then the resource-linked ‘Kiwi’ could catch some bids.