Pound New Zealand Dollar (GBP/NZD) Exchange Rate Recovers despite Weak Data
The Pound New Zealand Dollar (GBP/NZD) exchange rate is rebounding this morning from a sharp overnight slump, despite a worse-than-expected UK construction PMI. Bad news regarding China’s credit rating may be detracting from New Zealand Dollar (NZD) tailwinds today, given the countries’ close trading relationship.
At the time of writing, GBP/NZD is trading at NZ$2.0499, approximately 0.3% lower than this time yesterday.
New Zealand Dollar (NZD) Weakens on Elevated Risk Aversion
The New Zealand may be experiencing headwinds this morning on account of risk-off sentiment in the currency market. Downbeat news regarding China’s rising debt burden appears to have triggered some bearishness given the country’s position as the second-largest economy in the world.
Credit rating agency Moody’s cut its outlook on China’s sovereign credit rating to ‘negative’ earlier today, from ‘stable’ beforehand. The agency warned that the country faces rising debts and lower economic growth in the medium term.
Moreover, the Antipodean countries have a close trading relationship with China, making recent developments even more pertinent. Both the New Zealand Dollar and the Australian Dollar (AUD) are often referred to as China-proxy currencies.
Before the European session opened, the ‘Kiwi’ had been performing reasonably well against a basket of peers, boosted by a strong Chinese PMI reading. China’s Services Purchasing Managers’ Index surged to 51.5 in November from 50.4 in October.
Even weak data from New Zealand failed to depress NZD initially. The latest data from National Bank ANZ showed on Tuesday that the country’s commodity prices came in at a 1.3% drop in November from a 2.9% rise in October.
Pound (GBP) Defies Construction-Related Headwinds
The Pound (GBP) is enjoying a burst of strength against the New Zealand Dollar this morning, despite weakening in several other exchange rates.
Analysts commented overnight that modest GBP strength may be stemming from central bank indications. Financial markets have now almost fully priced in a first interest rate cut from the Bank of England (BoE) by June 2024.
The bank’s outspoken commitment to bringing inflation down to target appears to have given Sterling investors some confidence. In the context of rising business closures and enduring cost-of-living pressures, expectations of easing borrowing costs may bring relief to British consumers and homeowners.
Nevertheless, a surge of strength in the US Dollar (USD) as the European session opened weighs upon perceived-riskier currencies. Sterling’s uptrend against the ‘Kiwi’ versus the currency’s decline in other exchange rates may be explained by the Pound’s comparative safe-haven status against the volatile Antipodean currencies.
GBP/NZD Forecast: Financial Stability Report to Sway Exchange Rate?
Later this morning, the UK’s financial stability report could influence Pound exchange rates, giving investors some insight as to whether the BoE is veering toward a hawkish or dovish stance.
Subsequently, a scheduled speech from Governor Andrew Bailey may also influence GBP. If Bailey reiterates the bank’s commitment to bringing inflation down, Sterling could enjoy a boost.
Given a lack of further NZ data for the remainder of the session, the ‘Kiwi’ may take direction from external factors. As the conflict in Gaza continues and humanitarian concerns trouble global welfare bodies, risk-off sentiment may continue to cap New Zealand Dollar gains.