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GBP to NZD Exchange Rate Climbs as US-China Trade War Fears Return

May 13, 2019 - Written by Toni Johnson

Sterling saw significant losses on fresh Brexit jitters last week, but broad weakness in the New Zealand Dollar last week meant that the British Pound to New Zealand Dollar (GBP/NZD) exchange rate only saw modest losses overall. The Pound rebounded slightly from its weekend lows today, and it was able to regain some of last week’s losses versus the still weak ‘Kiwi’.

After opening last week at the level of 1.9822, GBP/NZD briefly jumped to hit a high of 1.9906, its best level since October 2018, before sliding lower later in the week.

GBP/NZD closed the week over a cent lower, at the level of 1.9704, but since opening this morning has already recovered over half a cent and trends closer to the level of 1.9777 at the time of writing.

Amid a lack of new notable Brexit developments this week so far, GBP/NZD has been driven largely by market aversion to risk and trade-correlated currencies as US-China trade tensions flare up.

GBP Exchange Rates See Limited Rebound amid Continued Brexit Speculation

After surging on Brexit hopes at the beginning of the month, and then plunging again last week as those Brexit hopes unravelled, the Pound continued to be driven by Brexit speculation when markets opened this week.

Brexit speculation has cooled a little since last week’s expectations that cross-party Brexit talks were likely to collapse, but the Pound did rebound slightly from its weekend lows amid speculation that another referendum of some kind was possible.

The opposition Labour Party officially only supports a second referendum if it cannot pass a soft Brexit or have a general election. Despite this, some officials from the party have been openly supporting the idea of a second referendum.

Shadow Brexit Secretary Sir Keir Starmer said that any cross-party Brexit deal was unlikely to pass through Parliament without a confirmatory poll.

However, uncertainties about domestic politics are only worsening in recent weeks, as recent local elections saw bad results for the major Conservative and Labour Parties, and the new populist Brexit Party surges in polls ahead of next week’s EU elections.

According to Anand Menon, Director of think-tank UK in a Changing Europe, the chances of a deal being forged are still seeing significant obstacles:

‘The local elections increased the incentive for May and Corbyn to get a deal,

But they also increased the incentive for Brexiteers in the Conservatives and Remainers inside the Labour Party to prevent a deal. It really ossified everything.’

NZD Exchange Rates Tumble amid Fresh Escalation in US-China Trade War

The latest Brexit jitters may have caused the Pound to fall across the board last week, but the New Zealand Dollar’s own weakness meant it barely benefitted.

The Reserve Bank of New Zealand (RBNZ) confirmed an interest rate cut from 1.75% to 1.50% as analysts predicted, as global trade and slowdown concerns hit New Zealand’s economic activity.

On top of domestic economic concerns hitting the New Zealand Dollar though, US-China trade tensions began to worsen again as China reportedly pulled back on some of its negotiated concessions.

This was followed by the US implementing new trade tariffs on US imports of Chinese goods, and this week has already seen China announce its retaliation.

Investors are now highly hesitant to take risks by buying trade-correlated currencies like the New Zealand Dollar. According to Neil MacKinnon, Global Macro Strategist at VTB Capital:

‘Uncertainty over the outcome of the US-China trade talks has rattled investor sentiment and an escalation in tariffs threatens to worsen the outlook for the global economy.’

The New Zealand Dollar remained weak, so despite a lack of strong Pound support GBP/NZD still regained some of last week’s losses.

GBP/NZD Exchange Rate Forecast: US-China Trade Developments Remain in Focus

This week’s economic calendar will be a little quieter, and the Pound especially is fairly unlikely to be influenced by UK economic news with political and Brexit uncertainties still taking centre stage in Pound movement.

As a result, tomorrow’s UK job market report is only likely to influence movement in GBP/NZD if it is particularly surprising.

Instead, Pound to New Zealand Dollar exchange rate investors are more likely to developments in politics, particularly UK politics, Brexit, and US-China trade negotiations.

If Brexit uncertainties worsen, GBP/NZD may struggle to advance much more.

However, if US-China trade tensions worsen the pair may be in for further gains and could even near its best levels all year.

While tomorrow’s UK jobs data is unlikely to be influential, UK business PMI data due for publication on Friday could cause some New Zealand Dollar movement if it surprises investors.
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