GBP/NZD Exchange Rate Forecast: Will UK Wage Growth Slowdown Lower Pound Demand?

May 14, 2018 - Written by Toni Johnson

STORY LINK GBP/NZD Exchange Rate Forecast: Will UK Wage Growth Slowdown Lower Pound Demand?

Last week, the Pound to New Zealand Dollar exchange rate opened in the region of 1.9280 and closed higher around 1.9435.

This was an overall weekly improvement, but the GBP/NZD pairing failed to maintain a weekly high of 1.9645 seen on Thursday.

Hopes for Less Extreme Brexit Enable GBP/NZD Exchange Rate Rise

The Pound (GBP) has continued to rise against the New Zealand Dollar (NZD) since the previous week, having advanced by 0.8% today to around 1.9595.

This favourable performance comes after the Norwegian Prime Minister spoke in favour of the UK joining the European Economic Area (EEA).

The EEA is a broad zone, covering EU nations as well as Iceland, Liechtenstein and Norway.

Effectively, EEA members don’t have to be members of the EU but are still able to benefit from single market access.

Speaking of the benefits to other EEA members, Norwegian PM Erna Solberg said:

‘I think we will cope very well if the Brits come in. It will give bargaining power on our side too. And it would ease Norway’s access to the UK.’

Ms Solberg was previously opposed to UK membership of the EEA, but these remarks suggest that opinion has shifted and the UK could now fit into the deal.

The problem now is whether the UK government will try and secure EEA access after Brexit; a recent vote in the House of Lords saw the approval of an amendment aimed at gaining EEA membership.

Today’s less-supportive UK economic news has concerned shopper footfall in April, which slowed by -3.3%.

This figure comes from British Retail Consortium (BRC) and Springboard analysis and suggests that the UK retail sector could face underlying problems even without the poor weather seen in March.

Commenting on the data, Springboard’s Diane Wehrle said:

‘Not since the depths of recession in 2009 has footfall over March and April declined to such a degree. Even then the drop was less severe at minus 3.8%.

‘The parlous state of retail trading is highlighted by the fact that footfall post-5pm recovered in the last two weeks of the month, rising by 5.9%, whilst daytime footfall dropped by 0.1%.’

New Zealand Dollar to Pound Exchange Rate Slides on Brain Drain Warning

A division in tax policy between Australia and New Zealand has been the cause of the latest New Zealand Dollar losses, on the back of a warning of an NZ ‘brain drain’.

Suggesting that overly harsh tax plans for New Zealand could drive large numbers of highly skilled NZ citizens to Australia, National party leader Simon Bridges said:

‘Our Government is being ridiculously tough on family budgets.

‘We don't want to go back to planeloads of Kiwis moving to Australia and our young families becoming economic refugees once again.’

A so-called brain drain can leave nations with shortages of key workers in vital areas, such as nurses, teachers and specialised engineers.

Another factor dragging the NZD down today has been the worry that New Zealand’s GDP growth rate could fall in the future.

Identifying some of the signs that could mean a GDP decline is incoming, New Zealand Institute of Economic Research Deputy Chief Executive John Ballingall has said:

‘ On the domestic front, business confidence has fallen sharply since the change in government and firms are telling us that they plan to invest and hire less than they have before.’

GBP/NZD Exchange Rate Forecast: Will Sterling Drop on UK Wage Data?

There is a chance that the Pound (GBP) could drop against the New Zealand Dollar (NZD) on Tuesday, when UK wage growth stats for March will be announced.

The most important reading, covering reported wage growth with bonuses included, is tipped to show a slowdown from 2.8% to 2.6%.

UK inflation is forecast to rise to 2.6% later in the month, so such a result could weaken the Pound because of fears about UK consumers facing a wage squeeze.

On the other side of the pairing, the New Zealand Dollar may appreciate if Tuesday afternoon brings news of higher global dairy prices.

The Global Dairy Trade (GDT) price index could cause an NZD/GBP exchange rate rally if it shows significant growth in the cost of dairy products, as this would support NZ exporters.

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TAGS: Pound New Zealand Dollar Forecasts