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GBP to NZD Exchange Rate Falls from Highs on Brief Risk Rally

May 16, 2018 - Written by Toni Johnson

Despite broad market pessimism surrounding Britain’s economy and the Bank of England’s (BoE) monetary policy outlook, the British Pound to New Zealand Dollar (GBP/NZD) exchange rate saw solid gains earlier in the week. The pair fell slightly from its weekly highs during Wednesday’s European session.

Last week saw GBP/NZD fall – just slightly – from 1.9454 to 1.9435. This was because global trade uncertainties and risk-aversion weighed on the New Zealand Dollar. This week, GBP/NZD briefly touched on a May high of 1.9696 before slipping. The pair currently trends near the level of 1.9561.

GBP Fails to Find Support in Latest UK Jobs Results

Investors have had little reason to buy the Pound in recent sessions, as UK data has not been impressive enough to boost Britain’s mixed economic outlook.

Recent UK growth and inflation stats have indicated that Britain’s economic performance slowed significantly since late 2017 and that Britain’s economy may not be strong enough to sustain tighter monetary policy from the Bank of England (BoE) any time soon.

The data published in recent sessions has simply not been strong enough to improve the worsening outlook again.

Tuesday saw the publication of Britain’s latest job market results, which largely met expectations.

The key unemployment rate remained at 4.2% as forecast. Wages excluding bonuses improved from 2.8% to 2.9% as forecast while the figure including bonuses slipped from 2.8% to 2.6% as expected.

While the employment change figure impressed by unexpectedly coming in at 197k, this was not enough to lead to a lasting boost in demand for Sterling.

On top of concerns about Britain’s economic strength, Brexit uncertainties have been hitting headlines again over the last week, as fissures within UK political parties over how the process should be handled persist.

According to analysts from Commerzbank:

‘That illustrates once again: the clock is ticking loudly and rapidly, in less than a year a valid and realistic deal has to be reached. Things are not looking good on that front at present. And as a result nor are they for Sterling,’

This followed last week’s Bank of England (BoE) policy decision, in which the bank left monetary policy frozen and even hinted that policy could remain frozen for the foreseeable future.

NZD Supported by Brief Boost in Risk-Sentiment and Commodity News

While concerns about US-China trade tensions and fresh tensions between the US and North Korea have made investors hesitant to buy into risky currencies like the New Zealand Dollar too much, there was still a brief boost in risk-sentiment on Wednesday.

This was at least partially due to the latest Global Dairy Trade (GDT) auction. The auction saw prices of dairy, New Zealand’s most lucrative commodity, reverse the losses seen earlier in May and climb 1.9%.

Dairy prices have now reached their best levels since September 2017, which briefly boosted demand for the dairy-correlated New Zealand Dollar.

Other mixed New Zealand data in recent sessions has had little impact on NZD trade. Investors have been more focused on trade news and the strength of the US Dollar (USD).

GBP/NZD Forecast: Key Data and Trade Developments in Focus Next Week

Multiple key ecostats from the UK and New Zealand will be published over the next week which could influence the Pound to New Zealand Dollar exchange rate.

Bank of England (BoE) policymaker Andy Haldane will hold a speech on Thursday, but besides that GBP/NZD is likely to be influenced by risk-sentiment and trade developments for the rest of this week.

New Zealand’s Q1 retail sales results will be published during Monday’s Asian session, but the biggest datasets next week will be Britain’s April inflation data and updated Q1 growth projections due on Wednesday and Friday respectively.

If UK inflation happens to come in above expectations, it could make the Pound a lot more appealing as Bank of England (BoE) interest rate hike bets could rise again.

Similarly, if Britain’s upcoming Q1 growth estimates beat earlier projections it would support Sterling.

GBP/NZD investors will also be paying close attention to New Zealand’s April trade balance report and Britain’s April retail sales on Thursday.
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