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GBP to NZD Exchange Rate Fails to Sustain Notable Recovery as UK Growth Disappoints

June 10, 2019 - Written by Toni Johnson

Despite the New Zealand Dollar seeing a notable selloff yesterday as the US Dollar (USD) rebounded, the British Pound to New Zealand Dollar (GBP/NZD) exchange rate’s gains were limited as the Pound was weighed by signs that Britain’s economy was performing even weaker amid Brexit uncertainty than analysts expected.

It follows last week’s tumble for GBP/NZD. After opening last week at the level of 1.9328, GBP/NZD spent most of the week falling and ended the week near its worst levels, at around 1.9111.

When markets opened this week, GBP/NZD briefly slid to a fresh low of 1.9087 – which was the pair’s worst level in two months, since early-April. GBP/NZD has since rebounded slightly, but its gains have been limited and the pair trended closer to the level of 1.9134 at the time of writing.

GBP Exchange Rates Fail to Sustain Gains as UK Economic Contraction Concerns Investors

After tumbling for most of last week, the New Zealand Dollar’s fresh weakness on a recovering US Dollar (USD) today meant that the conditions were ripe for the Pound to recover some of its recent losses.

However, just as the Pound began to mount a solid recovery attempt, the latest UK ecostats were published and many of the key prints fell well short of expectations.

A slew of datasets were published, including trade balance, construction output, industrial and manufacturing production, as well as Britain’s anticipated Gross Domestic Product (GDP) growth rate report.

Many of the key production and growth figures surprised investors with deeper than expected contractions. Industrial production printed a shocking -2.7% month-on-month, while manufacturing was an even more concerning -3.9%.

Due to these and weaknesses in Britain’s services sector, the monthly GDP report came in at -0.4% rather than the expected -0.1%.

Analysts including NIESR, which publishes its own UK growth estimate, expressed concern that Britain’s economy could see contraction in the second quarter overall.

According to Garry Young, Head of NIESR’s Macroeconomic Modelling and Forecasting:

‘The UK economy is on course to contract by 0.2% in the second quarter.

The latest GDP data were weaker than expected, partly reflecting shifts in production around the original Brexit departure date, including a 24% fall in car manufacturing.

The underlying picture is also quite weak, with Brexit-related uncertainty at home and trade tensions abroad dragging on investment spending and economic growth’

The Pound performed poorly today as a result, unable to hold a stronger recovery even against the tumbling New Zealand Dollar.

NZD Exchange Rates Plunge as US Economic and Trade Concerns Lighten

The New Zealand Dollar was one of today’s worst-performing major currencies, as the currency fell back from last week’s gains and was pressured by a recovery in the US Dollar (USD).

Most of the New Zealand Dollar’s gains versus the Pound last week were due to higher market demand for trade-correlated currencies, and US Dollar weakness.

New Zealand is a trade-heavy nation, so the NZD is heavily correlated to market shifts in trade and risk-sentiment.

As a result, the New Zealand Dollar advanced as the US Dollar fell on US trade jitters and rising Federal Reserve interest rate cut bets.

The New Zealand Dollar was able to advance even further as investors preferred it to the Australian Dollar, amid Australian growth concerns and Reserve Bank of Australia (RBA) interest rate cut bets.

However, the US Dollar has recovered slightly since the end of last week. This is because US-Mexico trade tensions have lightened, making investors more optimistic about the US economy again.

This, as well as other concerns about trade tensions between the US and China, are causing fresh New Zealand Dollar weakness.

According to Peter Cavanaugh from Bancorp Treasury Services, investors hope for some progress in US-China trade tensions near the end of the month:

‘If Trump and Xi don't come to some agreement and have some grandstanding announcement, this could really turn into a protracted struggle,

That worry is limiting the New Zealand dollar's upside.’

GBP/NZD Exchange Rate Forecast: New Zealand Manufacturing Data Could Support ‘Kiwi’

Investors haven’t had much reason to buy the New Zealand Dollar over the past week or so, as New Zealand data remains underwhelming.

The New Zealand Dollar’s recent strength has been more due to weakness in rival currencies like the US Dollar and Australian Dollar.

However, if upcoming New Zealand data beats expectations it could give the antipodean currency some more solid support, which may help the currency to avoid further losses.

Tuesday’s Asian session will see the publication of New Zealand’s May retail card spending data, as well as Q1 manufacturing sales results.

The manufacturing report will be one of this week’s more influential ecostats for GBP/NZD investors.

Of course, if the data disappoints investors instead GBP/NZD will have an easier time advancing further.

On the other hand though, if trade sentiment improves or UK political uncertainty deepens, the Pound to New Zealand Dollar (GBP/NZD) exchange rate will struggle to sustain any gains.
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