GBP to NZD Dollar Exchange Rate Fails to Advance as UK Services PMI Falls Short

August 3, 2018 - Written by Toni Johnson

STORY LINK GBP to NZD Dollar Exchange Rate Fails to Advance as UK Services PMI Falls Short

Despite underwhelming New Zealand data and continued market aversion to risky trade-correlated currencies amid US-China trade anxieties, the British Pound to New Zealand Dollar (GBP/NZD) exchange rate has ultimately failed to move much this week at all due to significant Brexit jitters weighing on the Pound’s appeal.

Since opening this week at the level of 1.9305, GBP/NZD has trended within a relatively tight 2-cent range between lows of 1.9200 and highs of 1.9404. At the time of writing on Friday, GBP/NZD was trending relatively limply near the level of 1.9305 again.

GBP Left Unappealing as Brexit Looms Over UK Services Sector and Bank of England Outlook

There were no developments in the Brexit process over the last week, but uncertainties regarding how the Brexit process and its surrounding uncertainties may impact Britain’s economic outlook prevented the Pound from benefitting from any of the latest UK news.

Most of the week’s influential UK data was disappointing as Brexit uncertainties weighed on new orders from businesses and business confidence remained low.

Friday saw the publication of the week’s most influential UK ecostat, in the form of Britain’s July services PMI report from Markit.

Following a disappointing UK manufacturing PMI on Wednesday, the services print unexpectedly slumped from 55.1 to 53.5 rather than slipping to the expected 54.7.

According to Tim Moore, Associate Director at IHS Markit:

‘Looking at demand fundamentals, service providers commented that Brexit uncertainty had held back new project wins, reflecting risk aversion and a wait-and-see approach to investment spending among international clients.

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Tight labour market conditions and rising wage pressures are also a key challenge for service sector companies, which contributed to the slowest pace of job creation since August 2016. Survey respondents are increasingly citing worries about the availability of suitably skilled candidates to fill vacancies, although this is also helping drive efforts to boost productivity across the service sector.’

Brexit jitters weighed on Britain’s economic data, but also on the Bank of England’s (BoE) hawkishness as the BoE’s interest rate hike this week was overshadowed by cautious comments on Brexit from BoE Governor Mark Carney.

Carney indicated that the perceived chances of a ‘no deal’ Brexit were uncomfortably high and even hinted that if the Brexit process goes worse than expected, the bank may need to cut UK interest rates rather than hike them. According to Kit Juckes from Societe Generale:

‘Bank of England Governor Mark Carney says that the chance of a no-deal Brexit is uncomfortably high. That’s a pretty dismal prospect for growth and an awful one for the public finances. It would be bad for the pound but from current low levels, the risk is that we face years of a weak currency rather than another huge move lower....’

NZD Fails to Capitalise on Weak GBP as Chinese Market Jitters Persist

The risky trade-correlated New Zealand Dollar has seen very little in the way of supportive news over the last week, leaving investors hesitant to buy it.
News that New Zealand’s job market participation rate had improved more than expected in Q2 2018 did little to boost NZD demand, as some investors were disappointed that New Zealand’s unemployment rate had risen as a result.

The biggest focus for New Zealand Dollar investors though has been the revived trade tensions between the US and China this week.

US President Donald Trump has indicated he could introduce more tariffs on US imports of Chinese goods, while China has indicated it intends to counter any trade action from the US.

As China is New Zealand’s biggest trade partner, the possibility of a full blown trade war between the US and China is making investors very hesitant to buy the trade-correlated New Zealand Dollar.

GBP/NZD Forecast: Reserve Bank of New Zealand (RBNZ) in Focus

After being influenced mostly by US-China trade jitters in recent weeks, the New Zealand Dollar could also be influenced by domestic data and Central Bank news next week.

Tuesday will see the publication of New Zealand’s Q3 business inflation expectations results, followed by the Global Dairy Trade’s (GDT) latest dairy price auction during the European session.

As dairy is New Zealand’s most lucrative commodity, surprising commodity trade news could inspire some New Zealand Dollar movement.

However, Thursday’s Reserve Bank of New Zealand (RBNZ) August policy decision could be even more influential if the bank takes a surprising tone regarding New Zealand’s economic outlook or US trade protectionism.

As for the Pound, investors will be anticipating next Friday’s UK Gross Domestic Product (GDP) results from June, and Q2 growth projections.

Of course, any potential Brexit developments or US-China trade escalations could influence the Pound to New Zealand Dollar exchange rate too.

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TAGS: Pound New Zealand Dollar Forecasts