Pound Sterling to New Zealand Dollar (GBP/NZD) Exchange Rate Drops on Latest Brexit Fears

October 25, 2018 - Written by David Woodsmith

STORY LINK Pound Sterling to New Zealand Dollar (GBP/NZD) Exchange Rate Drops on Latest Brexit Fears

On Wednesday, the Pound fell from an opening exchange rate of NZ$1.9811 to close down lower at a level of NZ$1.9797.

This depreciation was caused by high anxiety about a meeting between Prime Minister Theresa May and the 1922 Committee, a group of pro-Brexit backbench MPs.

The concern at the time was that the PM might face strong opposition from Committee members, potentially to the level of being dealt a leadership challenge due to differing opinions on the Brexit process.

Pound Sterling to New Zealand Dollar (GBP/NZD) Exchange Rate Slides on Recurrent Trader Brexit Fears

The Pound (GBP) has fallen against the New Zealand Dollar (NZD) today, with low confidence about the Brexit process dragging the GBP/NZD exchange rate down.

Wednesday evening’s above-mentioned meeting between the PM and the 1922 Committee ended in an apparent triumph for Theresa May, with the PM defusing the situation and avoiding an ousting attempt.

While this appears to have placated rebellious Conservative factions and unified the party on Brexit, the Pound hasn’t taken off today because the core issue of Brexit negotiations is still unresolved.

At the time of writing, talks were still stalled on what the Irish border would be like after Brexit; this has been a sticking point for months if not years between UK and EU negotiators.

Another factor that has been reducing Pound Sterling demand today has been the news that the government is going to start planning for a no-deal Brexit in November.

While this remains the worst-case outcome, the fact that the government considers no-deal to be a possibility has drained GBP trader confidence.

New Zealand Dollar to Pound (NZD/GBP) Exchange Rate Rises 0.6% despite Trade Balance Upset

The New Zealand Dollar (NZD) has performed well today, rising to the best exchange rate against the Pound (GBP) since the start of October.

This appreciation comes despite relatively unsupportive trade balance data for September, which has revealed a widening of New Zealand’s already-sizable trading deficit.

The NZ$-1470m deficit for August rose to NZ$-1560m during the previous month, when expectations had been for a deficit reduction to NZ$-1365m.

A larger trade deficit is bad news for New Zealand, as it means that the nation is importing more goods than it exports; this worsens conditions for those exporting national products and resources like dairy.

The one bright spot of the trade balance data has been that August’s initial deficit of NZ$-1484 was revised down to the above-mentioned figure.

Pound Sterling to New Zealand Dollar Exchange Rate Forecast: Will GBP/NZD Rise on Autumn Budget Reveal?

The Pound (GBP) may have dropped off against the New Zealand Dollar (NZD) today, but gains could be ahead when the Autumn Budget is revealed on Monday next week.

This budget is a key one for the Conservative Government and for GBP traders, as it will supposedly mark the end of austerity.

After the PM’s declaration that ‘austerity is over’, the pressure is on for Chancellor Philip Hammond to follow through and reveal some major spending plans for the months ahead.

That said, despite the assumed spending increase this will be a properly ‘Brexit’ budget, as its measures will be coming at the time of the UK’s initial exit from the EU in March 2019 (assuming that a deal has been reached).

The budget plans will also extend to the transitional period between 29th March 2019 and 31st December 2020, so they may be tempered by caution.

If Mr Hammond happens to throw caution to the wind and announce an unexpected package of spending measures for the months ahead then the Pound could rise sharply against the New Zealand Dollar.

The next economic data from New Zealand isn’t out until 30th October, when building permits figures for September will be revealed.

These are expected to show a comparative drop in the number of permits granted, with a shift from 7.8% growth in August to contraction of -12.5% in September.

Such a result could reduce demand for the New Zealand Dollar, as fewer permits granted means that there could be reduced construction sector activity over the months ahead.

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TAGS: Pound New Zealand Dollar Forecasts