GBP NZD Exchange Rate Slumps on Fresh Fears of Hard Brexit

May 8, 2017 - Written by Ben Hughes

STORY LINK GBP NZD Exchange Rate Slumps on Fresh Fears of Hard Brexit

Sterling has traded at 1.87 against the New Zealand Dollar, down from a rate of 1.88 on May 7th.

The only UK economic news on Monday has covered house prices; the Halifax price index reprinted growth on the year but showed no monthly change.

More impactful has been the French Presidential election, which concluded with a landslide victory for Emmanuel Macron. Much of Macron’s campaign strategy was aimed at promoting the EU and criticising Brexit.

This could lead to future troubles for the UK, as a more unified EU may decide that a bad Brexit deal is the best way to discourage further EU separation.

When quizzed about Macron’s attitude to Brexit, his Chief Economic Advisor Jean Pisani-Ferry stated;

‘Punish [the UK], certainly not. But [Macron] believes that even today Europe is part of the solution to the problems we are facing. He is a very committed pro-European and he is not the kind of man who would implicitly agree with the dismantling of the EU. He is very keen on building more integration. He’s very keen on strengthening the Eurozone’.

Despite this prediction, the fact remains that Macron will play a key role in Brexit negotiations due to France’s prominence in the EU and Eurozone. If he does seek to make an example of the UK then the Pound is likely to tumble against the New Zealand Dollar.

Ahead of any Brexit talks will be Tuesday’s annual British Retail Consortium (BRC) reported sales. March’s result showed a drop of -1%, so the April figure rises by 0.5% as forecast the Pound could appreciate.

After this news, the next announcement will be Thursday’s Bank of England (BoE) interest rate decision. The BoE is forecast to leave interest rates at 0.25%, but Berenberg Bank Senior UK Economist Kallum Pickering has predicted;

‘If the Bank of England waits too long it could fall behind the curve, and may face the prospect of hiking faster than would be desirable to try to bring inflation under control’.

In the midst of a general election, the BoE is unlikely to change any monetary policy, but could still hint at plans for action after June 8th.

New Zealand Dollar movement has been positive on Monday, with the ‘Kiwi’ advancing by 0.3% against the Pound.

The NZD has been supported by an ASB Bank forecast for national growth, at around 3% in 2017 and 3.5% in 2018. ASB Chief Economist Nick Tuffley predicts slowing construction and tourism growth, but still remains optimistic for the future.

On the NZ interest rate, Tuffley says;

‘An area that we do expect to be a sea of tranquillity is New Zealand’s [interest rate], unless there is a major Trump Tempest. Low interest rates will still be needed to keep pushing the economy along and generate a greater degree of inflation pressure. We expect CPI inflation will now remain comfortably within the RBNZ’s target band of 1-3%’.

The Reserve Bank of New Zealand (RBNZ) will make its May interest rate decision on Wednesday. As with Tuffley’s forecast, the general prediction is for no change from 1.75%. The New Zealand Dollar could still appreciate if the RBNZ hints at future interest rate hikes, though caution may be the watchword of policymakers.

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