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GBP to NZD Exchange Rate Slips from Best Levels on Late-Week Trade Speculation

January 18, 2019 - Written by James Fuller

The New Zealand Dollar has had a bearish week, as risk-aversion and domestic concerns about New Zealand’s economic outlook made it easier for a slightly stronger British Pound to New Zealand Dollar (GBP/NZD) exchange rate to sustain solid gains. On Friday, demand for the ‘Kiwi’ improved slightly, while the Pound’s modest Brexit-related rally ran out of steam.

After opening this week at the level of 1.8790, GBP/NZD edged higher in the first half of the week before surging in the second half. GBP/NZD gained over three cents over Wednesday and Thursday, hitting a two month high of 1.9242 on Thursday night before slipping slightly and trending near the level of 1.9165 at the time of writing on Friday.

The Pound outlook remains shrouded with Brexit uncertainties, limiting the currency’s strength.

Meanwhile, demand for the New Zealand Dollar improved slightly as the latest comments from US officials made investors more confident that there could be further de-escalation in US-China trade tensions, despite this week’s Huawei news.

GBP Exchange Rates Fail to Sustain Best Levels amid Lack of Perceived Progress in Brexit Talks

In what was a pivotal week for the Brexit process, the Pound’s performance was more volatile and mixed than sharp and sudden.

Sterling climbed for most of the week amid hopes that Parliament would only accept a softer Brexit outcome, or maybe even a second referendum of some kind.

Towards the end of the week, the Pound’s surprising rally of modest support appeared to fizzle out as Brexit uncertainties continued to cloud the UK outlook, and the latest high-level UK political news has given investors little to be excited about.

Since the UK government’s Brexit plan was defeated in Parliament earlier in the week, UK Prime Minister Theresa May has been seeking talks with leaders and lawmakers from other parties in order to find some kind of consensus on how the Brexit process should proceed.

However, these cross-party talks have thus far not shown much sign of producing a breakthrough, with leaders from different parties holding their positions.

Labour Party Leader Jeremy Corbyn has also indicated he will not take part in talks unless UK Prime Minister May rules out the possibility of a No-deal Brexit – which May has insisted is impossible to rule out.

On top of Brexit uncertainties the Pound’s appeal was limited further at the end of the week by Britain’s December retail sales results, which came in lower than analysts expected in every notable print.

NZD Exchange Rates Rebound Limited amid Unappealing Domestic Outlook

The New Zealand Dollar plunged last week, becoming one of the week’s worst-performing major currencies.

A combination of weaker global market demand for risky trade-correlated currencies, as well as concerns about New Zealand’s economic outlook, weighed on the New Zealand Dollar throughout the week.

The US Dollar (USD), a safe haven currency, rebounded for much of last week which made investors less interested in buying the risky New Zealand Dollar.

This risk-off movement was exacerbated on Thursday as US authorities revealed that a criminal probe into Huawei was underway. Huawei is a global Chinese tech giant, so this was perceived as worsening US-China tensions.

On top of this, speculation that the Reserve Bank of New Zealand (RBNZ) could cut interest rates sometime this year have put further pressure on the New Zealand Dollar.

As a result, even though hopes for US-China trade de-escalation rose slightly at the end of the week, the New Zealand’s Friday rebound was fairly subdued.

GBP/NZD Exchange Rate Forecast: Key New Zealand Inflation Report Ahead

While the Pound will continue to be driven by Brexit developments, the Pound to New Zealand Dollar exchange rate could still climb higher next week if upcoming New Zealand data disappoints investors.

New Zealand’s December services PSI will be published on Tuesday, followed by the major Q4 Consumer Price Index (CPI) inflation rate report on Wednesday.

New Zealand inflation is expected to have slowed slightly in both quarterly and yearly prints in Q4. If New Zealand inflation was even worse than forecast, Reserve Bank of New Zealand (RBNZ) interest rate cut bets could worsen and the New Zealand Dollar would weaken.

UK job market stats will be published on Tuesday too, but Pound investors are more likely to focus on potential Brexit news.

As it is still unknown how exactly the Brexit process will unfold with just over two months until the formal Brexit date, the Pound may struggle to climb unless a Brexit delay is confirmed or a softer Brexit is perceived as more likely.

The Pound to New Zealand Dollar exchange rate is also likely to remain sensitive to shifts in risk-sentiment and US-China trade tensions.
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