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Hopes for Higher EU ?Divorce Bill? Inspire Pound New Zealand Dollar Rate Rise

November 29, 2017 - Written by Tim Boyer

On Tuesday’s trading session, the Pound saw dramatic movement against the New Zealand Dollar. The pairing opened in the region of 1.9245, before dropping sharply to an almost two-week low of 1.9091.

In another shock movement, the Pound then surged higher to close up against the NZD in the region of 1.9368 late on Tuesday.

Hopes of #Brexit Breakthrough push GBP/NZD Exchange Rate Higher

Speculation about potential progress in Brexit talks has firmed the Pound today, which has posted gains against virtually all of its regular peers.

The GBP/NZD rate rise has been less impressive, but only because there has also been supportive NZ news recently.

For GBP traders, the suggestion that the UK government could increase the size of its ‘divorce bill’ has been seen as extremely good news.

Estimates are that the government could increase its earlier planned payment from €20bn to €55bn, which might provide a much greater level of influence in Brexit negotiations.

Traders are indeed banking on a higher payment having this effect, to the level of unblocking currently stalled talks.

Commenting on how this development could change the nature of Brexit talks, BBC Europe Editor Katya Adler said;

‘European Commission chief Jean-Claude Juncker is to host Prime Minister Theresa May at a working lunch next Monday.

This coincides with the EU-imposed deadline on the UK to prove sufficient progress on the three main Brexit issues - citizens’ rights, money and Ireland.

Or else, Brussels has warned the UK it can forget its dearest Christmas wish - for talks to widen and include discussion of trade and transition deals’.

Stressing the importance of getting a provisional divorce payment on the table, Adler has added;

‘Stepping back for a moment, the reason there is so much focus on money and the Irish border at the moment is because the UK is dead set on getting agreement from the EU in time for the EU leaders' summit mid-December, [so] that Brexit negotiations can be expanded to include talk of the future’.

Adler has additionally relayed her conversation with a diplomat, who responded to the news by saying;

‘Theresa May has her back against the wall over the Irish border Brexit issue this money news now distracts from that. It makes her seem proactive.

Far better for her to be seen to be generous before she comes to Brussels than have the news come out next Monday when it might seem she was bullied in to concessions’.

For now, Pound traders are greatly confident because of the news, but this could all change in the near-term on any negative adjustments to the proposed total divorce bill sum.

”Business as Usual” RBNZ Stability Report pushes NZD Higher

A ‘safe’ Reserve Bank of New Zealand (RBNZ) financial stability report has led to significant New Zealand Dollar gains today.

As mentioned above, however, the NZD has not been quite strong enough to post an advance against the more desirable Pound.

RBNZ officials have been broadly confident about the circumstances, stating that risks to the economy have reduced over the past 6 months.

The report struck a balanced tone, with RBNZ officials stating;

‘Momentum in the global economy has continued to build over the past six months, reducing near-term risks to financial stability.

However, the New Zealand financial system remains exposed to international risks related to elevated asset prices and high levels of debt in a number of countries’.

Near-term GBP/NZD Decline possible if UK Confidence Drops in November

While Sterling has made tentative gains against the New Zealand Dollar today, the pairing could fall sharply on Thursday’s confidence reading.

The GfK consumer confidence measure is tipped to worsen from -10 points to -11, which could panic GBP traders.

While this wouldn’t be a major decline, it would still set a bad precedent going into the traditional Christmas spending period.

The next source of New Zealand Dollar movement will be an ANZ business confidence reading for November.

Coming out early on Thursday, this is tipped to show an improvement from -10.1 points to -6.

In the absence of any more substantial news, rising business confidence could be enough to trigger a small NZD/GBP rate rise.
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