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Pound-to-New-Zealand-Dollar Exchange Rate Slips Back on Fresh UK Economic Jitters

February 11, 2019 - Written by Frank Davies

Despite surging on risk-aversion last week, the British Pound to New Zealand Dollar exchange rate slipped on Monday as the latest slew of UK data gave investors little reason to keep the Pound near its best levels. The New Zealand Dollar’s gains were limited though, as investors were hesitant to buy risky trade-correlated currencies.

Last week saw broad movements in GBP/NZD, as the pair opened the week at the level of 1.8961 and briefly slumped to a multi week low of 1.8762 before rebounding and ending the week nearer the level of 1.9186. This week so far, GBP/NZD has already slipped from its opening levels and trends more closely to the level of 1.9113.

Surprisingly deep contractions in UK data and Brexit uncertainties kept investors from buying Sterling.

As a result, investors were more eager to buy the relatively risky New Zealand Dollar back from its Friday lows despite market uncertainties about US-China trade tensions making investors hesitant to take risks.

Pound Sterling (GBP) Exchange Rates Sold as UK Economic Activity Continues to Slump

Towards the end of last week, hopes that the Bank of England (BoE) would still avoid UK interest rate cuts and the UK government would be able to negotiate a more domestically popular Brexit deal left the Pound climbing versus an unappealing New Zealand Dollar.

However, when markets opened this week some of that Pound support was weakened as a slew of underwhelming ecostats were published.

Britain’s latest Gross Domestic Product (GDP) growth rate figures were published, including December figures and projections for the whole of Q4 2018.

The Q4 growth projections came in close to expectations, but the yearly figure unexpectedly slowed to 1.3%. The monthly December figure was particularly disappointing, contracting at -0.4% rather than the expected 0.0%.

The contraction in growth was reflected in the latest manufacturing and industrial production stats, as well as business investment projections for Q4. All these figures showed shocking contractions that were worse than analysts expected.

Analysts blamed multiple factors for the slowdown and contractions, including Brexit uncertainty. However, other major economies have seen worse-than-expected performance in recent months due to the global economic slowdown.

According to Professor Costas Milas from Liverpool University, the data was noteworthy in indicating that the latest stats were worse than the Bank of England (BoE) predicted last week:

‘Indeed, the Bank’s forecasts assumed annual growth of 1.36% as the most likely outcome for 2018 Q4. Today’s ONS data readings suggest even lower annual growth at 1.3% for 2018 Q4 and a GDP contraction of 0.4% in December.

Quite worryingly, the “carry over” effects of the above readings indicate that the risk of recession has risen... Will politicians take (any) notice?’

The data being worse than the BoE expected also worsened concerns that the BoE could still cut UK interest rates in the foreseeable future.

New Zealand Dollar (NZD) Exchange Rates Rebound Slightly despite Rate Cut Fears and US-China Trade Jitters

The New Zealand Dollar saw broad losses towards the end of last week as investors became more risk-averse and bets of a Reserve Bank of New Zealand (RBNZ) rate cut left the currency under pressure.

US-China trade tensions flared up again as US President Donald Trump indicated he would not meet China President Xi Jinping again before March.

This worsened concerns that US-China negotiations could come to an end without any kind of deal being secured, and investors were hesitant to take risks as a result.

On top of this, recent New Zealand job market data fell short of expectations and worsened fears that the RBNZ could be more willing to signal an interest rate cut in its next decision.

Investors bought the New Zealand Dollar back from its worst levels in profit taking today and firmed in the currency as they anticipated the RBNZ’s upcoming decision.

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

Amid a lack of major data due for publication on Tuesday, the Pound to New Zealand Dollar exchange rate is likely to be influenced by political developments as investors anticipate Wednesday’s session.

On Wednesday, the Reserve Bank of New Zealand (RBNZ) will hold its February policy decision.

The bank is not expected to make any changes to monetary policy, but investors are anxious that recent weakness in New Zealand data could lead the bank to signal that it is prepared to cut New Zealand interest rates.

If the bank signals towards an interest rate cut, the New Zealand Dollar is likely to plunge.

The New Zealand Dollar would be even weaker if US-China trade negotiations go poorly and investors become more concerned that no trade agreement will be met. This would make it easier for GBP/NZD to climb higher.

However, if the RBNZ takes a more optimistic tone on New Zealand’s economy or US-China trade negotiations go well, GBP/NZD could slide as the New Zealand Dollar recovers further.

Of course, any surprising Brexit developments over the coming sessions could also influence the Pound to New Zealand Dollar exchange rate.
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