GBP to NZD Exchange Rate Surges as New Zealand Unemployment Disappoints

August 2, 2017 - Written by Ben Hughes

STORY LINK GBP to NZD Exchange Rate Surges as New Zealand Unemployment Disappoints

After poor performance in recent weeks, the British Pound to New Zealand Dollar exchange rate is surging this week as demand for risk-correlated currencies drops and New Zealand’s latest ecostats disappoint.

After opening the week at the low level of 1.7476, GBP/NZD has made a strong recovery. On Wednesday the pair hit a fresh two-week-high of 1.7840 and continued to trend near that level at the time of writing.

GBP Benefits from Solid UK Manufacturing Data

The Pound has been boosted this week by a couple of decent domestic ecostats, giving investors the opportunity to buy the recently unappealing Pound from its cheap levels.

On Tuesday, Markit published its UK manufacturing PMI for July, which improved from 54.2 to 55.1 despite being forecast to only edge higher to 54.4.

Nationwide’s July house prices report also impressed. The month-on-month figure slipped from 1.1% to 0.3% rather than the forecast -0.1% contraction, while yearly prices only slipped from 3.1% to 2.9% and avoided dropping to 2.7%.

Today’s data didn’t give the Pound any support and is more likely to have weighed on GBP/NZD advance potential. Markit’s construction PMI for July was forecast to slip slightly from 54.8 to 54.5, but dropped to a disappointing 51.9.

While Britain’s construction sector isn’t hugely influential, analysts were quick to give their thoughts on the slowdown. According to Samuel Tombs from Pantheon Macroeconomics;

‘The sharp fall in the construction PMI in July suggests that the renewed slowdown recorded by the official data in the second quarter won’t be short-lived.

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NZD Tumbles as New Zealand Job Market Data Disappoints

The primary reason for GBP/NZD losses this week has been investors selling the New Zealand Dollar in reaction to disappointing NZ data and commodity news.

Most of this week’s notable New Zealand data has fallen short of forecasts this week, particularly the Q2 job market report.

While the key unemployment rate met expectations and improved from 4.9% to a nine-year-low of 4.8%, this was largely due to a shocking drop in New Zealand’s participation rate.

The participation rate was forecast to improve from 70.6% to 70.7%, but unexpectedly slumped to 70.0%, indicating far less people were participating in the job market in Q2.

Analysts had expected employment to improve by 0.7% in Q2, but it actually worsened by -0.2%, with the unemployment rate only improving due to the participation rate drop.

According to StatsNZ, who compiled the report;

“The fall in employment primarily came from 5,000 fewer men being in employment this quarter, while the number of women in employment increased by 1,000.’

The New Zealand Dollar has also been unappealing due to this week’s Global Dairy Trade (GDT) auction, which showed that prices of dairy, New Zealand’s most lucrative commodity, had dropped by -1.6% in the latest auction and hit their worst levels since May.

GBP/NZD Forecast: Bank of England (BoE) Decision in Focus

The New Zealand Dollar is unlikely to see any notable shift in demand for the remainder of the week, as New Zealand’s economic calendar will be quiet until the Reserve Bank of New Zealand (RBNZ) meets on the 9th.

As a result, GBP/NZD movement will be driven largely by Pound strength until then, though shifts in risk-sentiment and commodity trade could influence the ‘Kiwi’ slightly.

The biggest event for Pound traders this week will be Thursday’s Bank of England (BoE) policy decision. If the BoE outlook has become notably more dovish due to a recent drop in inflation, the Pound could shed some of its recent gains towards the end of the week.

Analysts expect that only two BoE policymakers will vote for a rate hike this week, after three voted to hike rates in the previous meeting but hawkish policymaker Kristin Forbes left the role in June.

If even less policymakers vote for a rate hike than expected, it will indicate that the BoE is highly unlikely to become more hawkish in the foreseeable future while Britain’s economic outlook is uncertain. This would cause GBP/NZD to drop.

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TAGS: Pound New Zealand Dollar Forecasts