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GBP NZD Exchange Rate Rises as Traders Fret about Future NZ Government

September 26, 2017 - Written by Tim Boyer

The Pound opened trading at a rate of 1.8563 against the New Zealand Dollar on Monday, but ultimately closed down lower at 1.8556 by the end of the day.

UK Economic News: GBP NZD Rate Rises as Traders Look to PM’s Meeting

Although there has been little in the way of high-impact UK news today, the Pound has still managed to appreciate thanks to converse New Zealand Dollar weakness.

The main focus for Pound traders has been news that the Prime Minister will be meeting with Donald Tusk, President of the European Council.

The PM is due to discuss the tricky issue of Brexit, which has been dominating headlines since the previous week.

The main issue is that talks may have stalled, due to key differences between the UK and EU negotiating teams.

On the UK side, getting a UK-EU trade deal secured before the UK leaves the EU is crucial and UK negotiators have been trying to press this issue.

On the other hand, however, the EU team is sticking rigidly to a set schedule, which means that other issues need to be resolved before trade can be discussed.

Specifically, the European Council has been looking for progress in assuring the rights of EU citizens in the UK, along with the future of the Irish border.

It is hoped that today’s meeting between May and Tusk will bring a breakthrough, ideally with Tusk announcing that Brexit talks are continuing according to schedule.

In other news, a former Bank of England (BoE) policymaker has dismissed the idea that there should be a UK interest rate hike in November.

Danny Blanchflower has declared that there is ‘absolutely no basis’ for higher interest rates at the present time, given present weaknesses in the UK economy. Elaborating on his outlook, Blanchflower has said;

‘The enhanced uncertainty over the form Brexit will take will constrain growth even further. Cut the stupid stuff. Britain is the sick man of Europe.

The UK was the slowest growing economy in the EU28 in the first quarter of 2017 and joint last in the second quarter. Pathetic growth of 0.5% for the first half of the year wins the UK the wooden spoon’.

This has naturally thrown traders for a loop, as it raises the risk that going ahead with a rate hike in 2017 could weaken the Pound and trigger economic turbulence.

New Zealand Dollar Loses Ground as Future Government remains Unclear

NZD traders are still unwilling to commit to the New Zealand Dollar today, which has led to a clear NZD GBP exchange rate decline.

The issue has been that the two biggest parties, the Nationals and Labour, can both form a working government with New Zealand First. This raises uncertainty about how the country will proceed, given that the two main parties have wildly different policies in a number of areas.

A Labour coalition majority could trigger fresh New Zealand Dollar losses, given that the party would only just pass the threshold required to govern.

All eyes are currently on NZ First, the populist party that now finds itself in the ‘kingmaker’ position.

NZ First’s leader, Winston Peters, remains an uncertain entity in politics, as there have been reports that he may not particularly favour Labour or the Nationals.

It has recently been reported that Peters has a personal grievance with the Nationals, but he has denied this by stating;

‘[These accusations are] fiction, and grossly misleading. Some of [them are] barefaced lies.

None of it will have any bearing on New Zealand First in the coming talks around the establishment of the next government’.

GBP NZD Outlook: Further Pound Gains Possible on Carney Speech

Looking ahead, the Pound could be influenced by Thursday’s speech from Bank of England (BoE) Governor Mark Carney.

Carney has triggered Pound volatility over recent weeks with his comments and could repeat this on Thursday, depending on whether he discusses monetary policy or not.

The New Zealand Dollar could be influenced sooner, when the Reserve Bank of New Zealand (RBNZ) makes its interest rate decision on Wednesday night.

Any indications that higher rates could be on the way may lead to the NZD appreciating.
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