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Near-Term Pound to NZ Dollar Forecast: The GBP-NZD Could Find Itself Continuing to Climb

September 11, 2017 - Written by Tim Boyer

The Pound to New Zealand Dollar exchange rate is struggling to maintain the daily opening levels today, quoted at £1 = NZD$1.81223 (-0.18pct) ahead of the European open.

GBP/NZD began the trading week fluctuating in the build up to tonight’s EU repeal bill vote.

British parliament will vote tonight on the EU Withdrawal Bill (also known as the ‘Great Repeal Bill’), a proposal that is meant to convert EU laws into UK legislation in an attempt to ensure a smooth transition for Brexit in the years ahead.

Whilst the overriding sentiment is that the bill will successfully pass, it has encountered some resistance in the form of criticism from various Labour Party MP’s who claim that it allows the government an excess of law changing power without necessary parliamentary scrutiny.

Because of this some have decried it as a ‘power-grab’ and openly declared their opposition.

Despite resistance, however, the assistance of the Democratic Unionist Party (DUP) will likely enable the bill to pass with the majority it requires.

The Pound has climbed in the build-up as investors are certain that the passing of the bill will dispel a great deal of Brexit-related uncertainty, thus freeing Sterling to climb further unhindered.

‘Kiwi’ (NZD) Struggles as General Election Race Tightens

The New Zealand Dollar’s fluctuations today have been aggravated by their on-going General Election race, which remains at somewhat of an impasse.

The latest polls project a slim lead for the New Zealand Labour Party (54 seats) whilst the New Zealand National Party follows closely behind at 48. If, however, neither can scrape together a majority then they may be forced into a coalition with newcomer ‘New Zealand First’, a coalition that will likely result in a significant curb to immigration.

Anxieties in this respect are predominantly due to the idea that curbing immigration will cut economic growth for the antipodean nation, thus possibly fostering a weaker ‘Kiwi’ Dollar. Whether this will occur or not is irrelevant, as traders are skittish beings that do not like being caught unawares.

Immigration reform is also liable to occur if Labour decides to go into a coalition with NZ First, as further limiting immigration is already one of their campaign promises.

Another investor worry is Labour’s promise to reform the Reserve Bank of New Zealand, (RBNZ), an institution that currently operates with a single decision making Governor who is then advised by a committee (unlike the BoE, for example, which has a voting committee).

Indeed, if Labour does win and reform occurs, then the likelihood of severe upheavals in monetary policy increases, especially if the right to vote falls to a committee.

Shabab Jalinoos, global head of FX strategy at Credit Suisse, stated:

‘The rise of Labour and the potential tie-up with NZ First could lead to a less business-friendly environment and be bad for the country’.

The Pound has thus far succeeded in capitalising on this uncertainty, especially with the trader response to Brexit seemingly becoming more sanguine.

GBP NZD Forecast: Outlook Positive

The forecast for Pound to New Zealand Dollar exchange rate remains somewhat positive in light of the build-up to New Zealand’s general election.

Markets will, however, carefully study the results of tonight’s EU Repeal Bill and indeed tomorrow’s UK inflation figures, with the headline reading forecast to have jumped from 2.6% year-on-year to 2.8% in August.

If inflation does continue to rise then sentiment towards the Pound will likely increase, especially if Brexit related uncertainty continues to be dispelled.

In light of this, GBP NZD could find itself continuing to climb.

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