GBP NZD Exchange Rate Update: Sterling Up 0.3% with NZ in ?Productivity Recession?

August 14, 2017 - Written by James Fuller

STORY LINK GBP NZD Exchange Rate Update: Sterling Up 0.3% with NZ in ?Productivity Recession?

The Pound’s gains against the New Zealand Dollar today are primarily due to the latter’s weakness, rather than any particularly good UK news.

GBP Recap: Pound Advances despite Brexit Fears

Ahead of a high-impact inflation rate announcement, the Pound has risen against the New Zealand Dollar.

This comes on a week where UK government officials are poised to release a post-Brexit ‘wish list’. This official documentation would detail the ideal state of the UK after Brexit, on matters ranging from trade associations to the situation in Northern Ireland.

The announcement has a high chance of causing major Pound turbulence, as it will cover a number of controversial subjects and could lead to claims that the UK is locked into ‘Hard Brexit’.

NZD Slips on Disappointing Analysis of National Productivity

A report on the New Zealand economy by advisory firm JBWere has lowered confidence in the New Zealand Dollar today.

Targeting the disappointing level of productivity in the country, JBWere analysts have stated;

‘In the absence of productivity gains, our economy has relied on more people, working more hours. Net migration provides a conveyor belt of fresh labour, but it comes with attendant bottlenecks in housing and infrastructure. The profitability windfall for these sectors has not arrived, with earnings warnings from all the major listed construction companies this year’.

Experts have also focused on the wider issues of tourism into the country and dairy exports out of it;

’pushing the capacity envelope can be prone to mishap. [Net migration] has a boom-bust history. Unfortunately, our two other important cyclical drivers, tourism and dairy, can also evaporate at short notice’.

Rounding off the analysis, experts have looked at the national construction sector;

‘In the midst of a building boom, construction has been a tough sector to own, with profit warnings in all of the major listed companies. This underlines the trade-off of an economy that has the needle in the red. Volume growth is impressive, but profitability actually becomes harder to find’.

Weekly GBP NZD Forecast: High Volatility ahead on Inflation and Earnings Figures

The Pound is expected to be greatly unsettled in the current week, as high-impact UK data comes out alongside New Zealand commodity news. Political developments will also come into play, but initially the main event will be UK inflation figures on Tuesday followed by jobs stats on Wednesday.

National inflation is tipped to have risen in July; this outcome would usually boost the Pound as it would pressurise the Bank of England (BoE) to raise interest rates.

Under current conditions, however, the BoE is disinclined to do so as UK wage growth is far below the rate of inflation.

This means that even if the BoE does raise interest rates and start to pull inflation down, this would harm consumers who have taken advantage of low interest rates and accumulated high levels of household debt.

In this line, UK wage growth is projected to remain unchanged on Wednesday. Unless the BoE feels that an interest rate hike will be the lesser of two evils, the Pound could remain weak on such an outcome.

For context, expectations are for little wage growth in the future due to a large labour pool driving down the need to create competitive salaries.

Other UK data to watch out for will include the unemployment rate (out on Wednesday, set to stagnate) and the jobless claims count. Also out on Wednesday, this is expected to show a reduction in claimant counts.

Ending what may be a bad week for the Pound, the last data of note will be Thursday’s retail sales results. Falling sales are predicted in July, which may raise fears about future GDP printings.

This week’s NZ news will be less frequent, but is still expected to cause moderate exchange rate movement. Tuesday’s NZ news will be the Global Dairy Trade price index, a measure of changes in dairy prices across the world.

Previously, a -1.6% drop in prices was recorded. If another negative figure is posted for August then the NZD could slump.

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TAGS: Pound New Zealand Dollar Forecasts