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GBP NZD Exchange Rate Strengthened as NZ Political Uncertainty Persists

October 11, 2017 - Written by John Cameron

The Pound New Zealand Dollar (GBP NZD) exchange rate continued to trend higher this morning as ongoing political concerns in New Zealand caused investors to shy away from the ‘Kiwi’.

New Zealand Dollar’s (NZD) Weakens as Political Uncertainty Looks Set to Continue

After briefly strengthening overnight on Tuesday the New Zealand Dollar slipped again this morning as coalition talks look set to go on longer than previously thought.

The ‘kingmaker’ of the recent election, New Zealand First Leader Winston Peters, who has been in talks with both the Ruling National Party and Labour behind closed doors all this week appeared to revise his timeline for creating a new coalition.

Asked about when an announcement would be made Peters replied ‘Not on Thursday night, no. The answer is as soon as possible after Thursday night,’ when pressed on whether it would come before the weekend he said ‘I can't quite answer those questions as it depends on others as well.’

Peters previously said before the election;

‘I make this guarantee that whatever decision New Zealand First arrives at post-election, it will be made public by the day the writs are returned, which is within three weeks from polling day.’

The possible delay in coalition talks did little to reassure markets, with investors wary of the ‘Kiwi’ while it remains unclear who will form the next government.

It has now been almost three weeks since the election in which the National party and Labour both failed to gain enough seats to form an effective government and forcing both sides to attempt to woo NZ First which is the only other party with enough seats to tip the balance.

Pound’s (GBP) Gains Tempered by ‘No Deal’ Talk

Meanwhile the Pound’s advance was undermined slightly this morning following comments from Chancellor Philip Hammond in which he said that the UK would not allocate funds to a ‘no deal’ Brexit plan until it becomes absolutely necessary.

In an appearance before the Commons Treasury committee Hammond said;

‘We are prepared to spend when we need to spend against the contingency of a no deal outcome. I am clear we have to be prepared for a no deal scenario unless and until we have clear evidence that this is not where we will end up. What I am not prepared to do is allocate funds to departments in advance of the need to spend.’

Hammond said that money would instead be spent on key areas such as health, social care and education.

However markets fear that this may mean that the government will not be fully prepared for a worst case scenario in which the UK leaves the EU with no agreement and defaults to World Trade Organisation rules.

Adding to these concerns were suggestions by Hammond that a ‘no deal’ Brexit could cause air travel between the UK and the EU to be suspended, something that would have major consequences for the UK’s aviation sector and the million people it employs.

GBP NZD Forecast: BoE Haldane Speech to Signal Rate Hike?

Looking ahead the GBP NZD exchange rate may push higher again on Thursday following a speech by Bank of England (BoE) Chief Economist Andy Haldane.

Haldane has previously been on the fence over raising interest rates so his possible support for tightening monetary policy in the near future would be seen as key indicator that the BoE will seek to raise interest rates in when its policymakers next meet in November.

Meanwhile the New Zealand Dollar may strike slightly higher overnight with the release of the country’s latest Consumer Confidence survey, with economists forecasting that household sentiment will have picked up slight in October.

Current Interbank Exchange Rates

At the time of writing the GBP NZD exchange rate was trending around 1.8656 and the NZD GBP exchange rate was trending around 0.5357.

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