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Returning Brexit Optimism Pushes Up GBP NZD Exchange Rate

July 17, 2017 - Written by Toni Johnson

As discussions between UK and EU negotiators continue in Brussels, the Pound has advanced by 0.2% against the New Zealand Dollar.

Rising GBP NZD Exchange Rate Triggered by Growing Brexit Optimism



While minor, this rise in the GBP NZD exchange rate still demonstrates growing investor optimism about the Brexit process.

Initial UK-EU negotiations began almost a month ago, but hit a few bumps in the road when the issue of citizens’ rights was brought up.

The main issue was that EU lawmakers were keen to see EU citizens get a favourable deal on citizenship when they moved to the UK. An initial offer was put forward by Prime Minister Theresa May, but after analysis, the offering was deemed inadequate.

This raised concerns that UK citizens in the EU may face an equally ‘inadequate’ deal, which could risk seeing increased repatriation in the UK, at a time when housing is in short supply and national services are extremely stretched.

Since then, Brexit Secretary David Davis has expressed a desire to ‘get down to business’, and has promised to make securing citizens’ rights a priority.

In the event that Davis does manage to turn around current EU scepticism about the UK’s negotiating aims, following Brexit discussions may be that much smoother.

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Gathering sentiment about fruitful future discussions has been the main driving force behind today’s Pound appreciation.

In other UK news, Theresa May is expected to ask ministers to stop reporting to the media after meetings. If adhered to, this measure could reduce future economic turbulence in the UK due to reduced speculation.

New Zealand Dollar Fails to Rise as Inflation Fears Take Over



Ahead of upcoming NZ inflation rate figures, the New Zealand Dollar has fallen against the Pound.

The main issue is that upcoming inflation rate figures may show declining price growth, which would lower the incentive on the Reserve Bank of New Zealand (RBNZ) to raise interest rates.

This decline comes in spite of strong trading data from China, which has shown a sharp rise in Q2 GDP. One of New Zealand’s biggest trade partners, China has posted a rise in quarterly Q2 GDP from 1.3% to 1.7%.

Offering some insight, Economist Intelligence Unit China Analyst Dan Wang has said;

‘China’s economy will hold up for the second half of the year, given sustained state-led investment and robust household spending. The monetary policy will remain neutral--cracking down shadow banking while increasing lending through formal banking channel. Given the high base in 2017, however, to sustain high growth for 2018 will be tough’.


In other positive news, Reserve Bank of New Zealand (RBNZ) Deputy Governor Geoff Bascand has stated that the NZ economy is less vulnerable to funding-related shocks.

GBP NZD Short-Term Forecast: Further GBP Gains Possible if UK Inflation Posts Higher



As with New Zealand, UK inflation will be the next main economic news to come out. In the UK’s case, projections are for a 2.9% reprint for June's annual inflation on Tuesday.

At 2.9% in May, UK inflation was already above the Bank of England (BoE) target of 2%. Another reprint would heap pressure on the BoE to act, potentially to the point of raising UK interest rates.

Adding weight to this theory, BoE policymakers have recently been divided on the issue of interest rates.

In New Zealand’s case, Q2 inflation is forecast to slow from 1% to 0.2% on the quarter. Additionally, annual inflation is predicted to tick down from 2.2% to 1.9%.

Both outcomes would lessen the chances of a near-term RBNZ interest rate hike, which could lower trader confidence and the NZD’s value.

Past any inflation-inspired turbulence, the New Zealand Dollar may also be affected by Tuesday’s global dairy trade auction results.

A worldwide measure of dairy prices, this could trigger a New Zealand Dollar rally if it shows a significant rise. Previous price measures have shown two consecutive price drops, so a significant rise may be enough to restore NZD trader confidence.
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