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GBP NZD Exchange Rate at Five-Month High over New Zealand Political Concerns

October 20, 2017 - Written by John Cameron

The Pound New Zealand Dollar (GBP NZD) exchange rate struck a five-month high this morning as political uncertainty continued to weigh on the ‘kiwi’.

New Zealand Dollar (NZD) Falters as New Coalition Government to Enter Power



The New Zealand Dollar remains on the back foot today as investors continue to remain wary of the currency as the country faces its first change in power for nearly a decade.

While markets are always unsettled by a change in the status quo, investors are particularly concerned that the new coalition between Labour and NZ First may be relatively unstable.

In a note released today Nick Tuffley and Mark Smith, economists at ASB Bank suggested;

‘Labour and NZ First will form a minority government, with the Green Party providing supply and confidence. The two coalition partners will have 55 out of the required 61 seats in Parliament. The Green Party has 8 seats, providing a 2-seat parliamentary buffer via the supply and confidence agreement.’

‘A slim parliamentary majority and a large National Party opposition suggest that the new administration will need to exercise considerable discipline to retain control and advance its ambitious policy agenda. It will be a tricky balancing act.’

Further concerns have been prompted by the some of the coalition’s possible policy changes, particularly around immigration and foreign investment, with markets fearing that they could negatively impact New Zealand’s economy.

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Pound (GBP) Lifted as UK Runs Smallest September Deficit since 2007



Meanwhile the Pound has also been strengthened today by the UK’s latest public sector borrowing report.

According to data published by the Office for National Statistics earlier this morning the UK public deficit stood at £5.9bn last month, the lowest September deficit in a decade.

On top of this the ONS also revised down August’s deficit by around £1bn to £4.7bn.

The data shows that for the first six months of the fiscal year the UK government borrowed a total of £32.5bn a fall of £2.5bn from the same point last year.

A spokesman from the UK Treasury responded to the data saying;

‘Whilst we’ve made great progress getting the deficit down by over two thirds, government borrowing is still far too high at over £150 million a day.’

‘We will continue to take a balanced approach that deals with our debts and allows us to invest in our public services.’

Markets hope that the fall in government borrowing overt the last six month’s may give Chancellor Phillip Hammond a little more room to manoeuvre ahead of the release of next month’s budget.

Not all analysts are so optimistic however with Paul Hollingsworth at Capital Economics suggesting;

‘It is too soon for the chancellor to begin loosening the purse strings in response. After all, the OBR [Office for Budget Responsibility] expected the deterioration in the public finances to be back-loaded this year, reflecting the unwinding of a number of temporary factors.’

GBP NZD Forecast: Stalling of Brexit Trade Talks to Weigh on Sterling?



The GBP NZD exchange rate may stumble later today as EU leaders meet to discuss the progress of Brexit negotiations, with the general consensus being that they will vote to delay the second stage of talks for the time being, likely leading to a dip in Sterling sentiment.

Looking ahead to next week a possible downturn in the Pound may persist as analysts forecast that the Confederation for British Industry's monthly industrial orders balance will have fallen in October.

Meanwhile ignoring further political uncertainty the New Zealand Dollar may find some gains next week with the release of the latest domestic trade balance on Wednesday, with economists forecasting that the trade deficit will have narrowing in September.

Current Interbank Exchange Rates



At the time of writing the GBP NZD exchange rate was trending around 1.8864 and the NZD GBP exchange rate was trending around 0.5299.

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