September 3, 2018 - Written by Minesh Chaudhari
STORY LINK GBP/NZD Exchange Rate Drops -0.3% as Brexit Fears and Manufacturing PMI Drag Pound Demand Down
Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Drops on PMI Upset and Brexit Fears
The Pound (GBP) has made notable losses against the New Zealand Dollar (NZD) and other currency peers today, falling in value because of the latest UK PMI and Brexit-related developments.
In the former case, August’s manufacturing PMI has fallen by more than forecast, which has rattled GBP traders.
The drop from 53.8 points to 52.8 was seen as a bad sign by Duncan Brock of the Chartered Institute of Procurement and Supply (CIPS), who said:
‘Fears for a stalling manufacturing sector took a step closer to becoming a reality this month with the most disappointing performance for two years.
‘The lifeline of strong export orders enjoyed since May 2016 dried up, as the attraction of a weaker Pound was not enough to sustain the momentum. The domestic market once again failed to make up any shortfall.
‘The weaker trends in both output and new orders impacted on job creation as larger corporates scaled back from hiring new staff and business optimism weakened.
‘Purchasing prices continued their steep climb, affected by material shortages and worsening supplier performance making life more difficult.’
On the subject of Brexit, GBP traders have also been unsettled by statements from EU Chief Negotiator Michel Barnier.
Backtracking on previous comments suggesting a ‘bespoke’ Brexit deal, Mr Barnier has reiterated that the EU has immovable barriers around areas such as the single market, which cannot be altered regardless of UK demand.
This outlook throws the chances of meeting the October Brexit negotiation deadline into question and has unnerved GBP traders.
New Zealand Dollar to Pound (NZD/GBP) Exchange Rate Rises despite Low Risk Sentiment
The New Zealand Dollar (NZD) has risen by 0.5% against the Pound (GBP) today, although this is mainly down to GBP weakness; in other pairings, the New Zealand Dollar has fallen sharply.
These overall New Zealand Dollar losses are down to the latest international trade developments – the danger of the US imposing additional tariffs on China has unsettled currency traders today.
This has led to a drop in risk sentiment and a sharp rise in demand for safe haven currencies like the US Dollar – in consequence, the 'riskier' New Zealand Dollar has fallen against most peers except the weaker Pound.
Pound Sterling to New Zealand Dollar Exchange Rate Forecast: Will GBP/NZD Fall Further on UK Construction PMI?
The Pound (GBP) is at risk of making losses against the New Zealand Dollar (NZD) on Tuesday, depending on how Tuesday and Wednesday’s UK PMI data turns out.
The first of these, Tuesday’s construction PMI reading for August, is expected to show a disappointing shift from 55.8 points to 55.
This would still mean that the sector grew during the month, but would nonetheless be a slowdown and a step closer to the sub-50 point contraction range.
The more notable PMI reading is Wednesday’s services sector result, which is currently expected to rise from 53.5 points to 53.9.
The services sector is the single largest contributor to national economic growth, so an on-forecast or forecast-beating result for August could trigger a sharp GBP/NZD exchange rate rise.
This week’s main piece of economic data from New Zealand will be Tuesday afternoon’s Global Dairy Trade price index reading.
Measuring changes to global dairy prices, this reading previously showed a -3.6% drop in prices and is tipped to show another decline of -2%.
Such a result could drain confidence among NZD traders and lead to losses against Pound Sterling and other regular peers.
Falling dairy prices make conditions worse for New Zealand’s countless dairy farmers, both on the national and international level.
Outside of these scheduled data releases, the Pound to New Zealand Dollar exchange rate could also be affected by any additional mentions of the Brexit process.
The best case scenario for Pound traders will be an optimistic statement from EU officials about making real progress in Brexit talks; such a development could reassure traders and boost the GBP/NZD exchange rate.
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TAGS: Pound New Zealand Dollar Forecasts