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GBP NZD Tumbles as UK Manufacturing Disappoints

October 2, 2017 - Written by Frank Davies

The Pound New Zealand Dollar exchange rate tumbled today as markets responded to news that UK manufacturing activity slipped below forecasts in September.

UK IHS Markit Manufacturing PMI Misses its Mark – GBP Falls

The IHS Markit UK manufacturing PMI dropped to 55.9 in September, below the downwardly revised 56.7 figure in August and lower than the market expectation of 56.4.

This fall was predominantly due to the prices of various goods used in the production process soaring to a six-month high, a climb in turn caused by the rising cost of commodities and the current weakness of the Pound.

It should be noted, however, that whilst these readings were below expectations, any figure above 50 demonstrates expansion, rather than contraction.

Rob Dobson, Director at IHS Markit shared his sentiment on these readings:

‘Although it looks as if the sector made solid progress through the third quarter as a whole, the growth slowdown in September is a further sign that momentum is being lost across the broader UK economy’.

As a result the value of the Pound plummeted, with many investors worried that the negative representation of the UK’s economy could quell possibilities of a rate hike within 2017.

New Zealand Dollar (NZD) Still Recovering from Election Stalemate

Whilst the ‘Kiwi’ Dollar has managed to capitalise on today’s weakness of the Pound, its general outlook remains hampered by the recent stalemate in the New Zealand General Election.

Uncertainty continues to ensue in the wake of the hung parliament, with businesses and investors still worried about what future economic policies will result from a coalition.

Beyond this, because the election has no clear winner Winston Peters, leader of the New Zealand First Party will be deciding between a deal with Bill English and National or Jacinda Arden and Labour, though he has stated that no decisions will take place until the 7th of October when the final voter tally is counted.

Because of this the period of uncertainty is liable to continue for weeks, if not months, further encumbering the ‘Kiwi’ Dollar.

GBP NZD Forecast: Election Woes Liable to Continue Hindering ‘Kiwi’

The Pound New Zealand Dollar exchange rate is liable to become increasingly volatile tomorrow on the fortnightly global dairy trade price auction and a range of UK data prints.

The dairy auction is a fundamental variable in determining the value of the ‘Kiwi’ Dollar, with New Zealand’s largest export, of course, being dairy products.

Whilst a jump in prices would historically result in a jump in demand for the New Zealand Dollar, this may be negated somewhat by the recent stalemate in New Zealand’s general election.

For the UK on the other hand, tomorrow will be notable for the Markit construction PMI release, and the release of the transcript for the Bank of England’s (BoE) Financial Policy Committee’s September meeting.

Whilst the meeting in September was notably hawkish, markets will carefully assess said transcript for any new indication that the Bank might be steering towards a rate hike in 2017.

If the transcript does offer new hawkish information then GBP NZD will climb. If it fails to provide anything new, however, then GBP NZD will remain at the mercy of this week’s PMI releases.

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