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Pound New Zealand Dollar (GBP/NZD) Exchange Rate Steady as PM Faces 1922 Committee Chair

May 7, 2019 - Written by John Cameron

Pound (GBP) Muted as May Meets 1922 Committee Chair

The Pound New Zealand Dollar (GBP/NZD) exchange rate was left to trade in a narrow range today, with investors appearing to shy away from Sterling as Theresa May prepared to meet with Sir Graham Brady.

Whilst the PM’s meeting with the Chair of the influential 1922 Committee of backbench Conservatives is routine, it comes amidst growing calls for her to resign as PM.

In fact Sir Brady himself called on Theresa May to announce a ‘road map’ for her resignation at the start of the week.

May had previously stated she would step down as PM if Parliament approved her EU Withdrawal deal, but gave no timetable on when this would happen or if she would still resign in the event of a no-deal Brexit.

Whilst she is protected against another no-confidence vote until the end of the year, some GBP investor fear that as pressure grows the PM may have no choice by to step down.

New Zealand Dollar (NZD) Subdued as US-China Trade Tensions Flare

Meanwhile the New Zealand Dollar (NZD) has also be left out to dry today as the risk-sensitive currency is weakened by a risk-off mood in markets.

This slide in sentiment comes as US-China trade tensions begin to flare once again, on the back of US President Donald Trump’s threat to impose fresh tariffs on China.

In a surprise escalation in tensions, Trump accused China of dragging its feet in trade negotiations and announced that tariffs on $200bn worth of Chinese goods could be raise from 10% to 25% by the end of the week unless progress is forthcoming.

The threat comes just days before Chinese Vice-President Liu He is due in Washington for the latest round of talks, and has stoked concerns that they could be derailed.

Neil MacKinnon, global macro strategist at VTB Capital suggests:

‘President Trump’s threat to increase tariffs on Chinese imports is denting market sentiment and creating unnecessary volatility especially in equity markets.

‘Investors had been hopeful of a constructive outcome to the US-China trade talks but a worst-case scenario of a collapse in the talks could totally undermine hopes of a recovery in world trade and global economic growth.’

With New Zealand’s economy driven by trade, particularly with China, the news that talks could be dragged out even further or even collapse completely, is unsurprisingly limiting the appeal of the ‘Kiwi’.

GBP/NZD Exchange Rate Forecast: Could the RBNZ Cut Rates this Month?

Looking ahead, the main catalyst of movement in the Pound New Zealand Dollar (GBP/NZD) exchange rate is expected to be the Reserve Bank of New Zealand’s (RBNZ) rate decision later tonight.

This comes on the back of considerable speculation in recent weeks that the RBNZ could cut interest rates this month after inflation tumbled in the first quarter.

While the odds of the RBNZ lowering rates were 60% at the start of the week, with the Reserve Bank of Australia (RBA) choosing to keep rates on hold on Tuesday it may keep the bank from pulling the trigger this month.

Stephen Toplis, Head of Research at BNZ Bank writes:

‘The only thing one can say with any confidence about this week's Monetary Policy Statement is that market pricing will move on the day.... just after 2.00pm on Wednesday the movement in yields - and, potentially, the NZD - will be significant. The question is, in which direction.’

Meanwhile the outlook for Sterling looks set to be dominated by the UK’s latest GDP estimate in the latter half of the session.

Friday’s preliminary GDP reading is widely expected to report that UK economic growth jumped in the first quarter of 2019, with economists forecasting that growth may have jumped from 0.2% to 0.5% and likely propelling the Pound higher.

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