Brexit Fears Send GBP NZD Exchange Rate to 2-Month Low

January 13, 2017 - Written by Toni Johnson

STORY LINK Brexit Fears Send GBP NZD Exchange Rate to 2-Month Low

The Pound to New Zealand Dollar exchange rate fell on Thursday as Brexit jitters returned once the UK government announced that Prime Minister Theresa May’s Brexit speech would take place this coming Tuesday. The ‘Kiwi’ held firm on lasting risk-sentiment.

GBP/NZD began the week trending at the level of 1.7662 and as of Friday morning was trending near a two-month-low of 1.7065. Almost six cents down, the pair is not expected to make a significant recovery by the time markets close.

Pound (GBP) Sold off Again as Markets Await Brexit Speech

This week has been a firm reminder that the Pound is still highly vulnerable to Brexit news, as the British currency has fallen since the beginning of the week on fears that the UK government will not be making single market access a part of its Brexit negotiations.

Last weekend saw UK Prime Minister Theresa May hold an interview with Sky News in which she said the UK would not simply be able to keep bits of EU benefits once it leaves the bloc.

Investors fear there will be more of the same when May holds her highly anticipated Brexit speech on Tuesday the 17th.

Clarity on the government’s Brexit stance and what this will mean for negotiations are expected to be detailed in the speech. However, once the date of the speech was announced investors sold Sterling off on single market concerns.

New Zealand Dollar (NZD) Sturdy on Hopes of Solid 2017 Growth

Demand for risk-correlated currencies has been strong in the last week as the price of commodities like iron ore and oil have strengthened.

USD jitters following Wednesday’s disappointing press conference from US President-elect Donald Trump have also left risky currencies like the New Zealand Dollar more appealing to traders as they look for higher yields.

While this week’s New Zealand data hasn’t been impressive at all, with monthly retail card spending only improving from -0.1% to 0.1%, the ‘Kiwi’ continued to perform solidly on Friday.

It saw further support thanks to a relatively optimistic forecast from the ASB Bank, which predicted the New Zealand economy would grow 3.5% in 2017 with inflation recovering from its recent lows.

GBP/NZD Forecast: Second 2017 GDT Auction Ahead

With GBP/NZD down from the week’s opening levels by over 5 cents, a recovery before the weekend is highly unlikely. The pair is forecast to end the week below its opening levels and could continue to fall next week.

The main event for Sterling in the coming week will of course be UK Prime Minister Theresa May’s Brexit speech on Tuesday, but other economic publications throughout the week may also influence GBP trade.

Monday will see the publication of Britain’s January house prices results from Rightmove. Then on Tuesday we'll see May’s speech and Britain’s December Consumer Price Index (CPI) results. Tuesday, therefore, could easily set the tone for the whole week’s GBP trade.

As for the New Zealand Dollar, the next influential event will be Tuesday’s Global Dairy Trade (GDT) auction. The first dairy auction of 2017 saw prices of New Zealand’s most lucrative commodity fall, which disappointed investors.

If prices of dairy improve, demand for the New Zealand Dollar will improve too.

However, the end of the week will see the inauguration of Donald Trump as the next US President which could lead investors rushing into ‘safe haven’ currencies as markets await Trump’s first moves and what they may mean for the US economic outlook or the Federal Reserve.

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TAGS: Pound New Zealand Dollar Forecasts