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Newly Elected PM Boris Johnson Buoys Pound Sterling New Zealand Dollar (GBP/NZD) Exchange Rate

July 23, 2019 - Written by John Cameron

Pound New Zealand Dollar (GBP/NZD) Exchange Rate rises despite Newly Elected PM Boris Johnson Makes No-Deal More Likely

The Pound Sterling New Zealand Dollar (GBP/NZD) exchange rate rose and the pairing is currently trading at an inter-bank rate of NZ$1.8565.

On Tuesday, frontrunner in the Conservative Leadership contest Boris Johnson was announced as the next Tory leader.

Boris Johnson defeated Jeremy Hunt by gaining 92,153 votes, or 66% of the vote compared to Hunt’s 46,656 votes.

Following the announcement, ratings agency Moody’s warned that crashing out of the European Union would cause ‘significant’ damage to the UK’s credit rating.

It has also been noted that Johnson’s victory means the chances of a deal between London and Brussels less likely.

Commenting on this, Moody’s managing director Colin Ellis noted:

‘With the election of Mr Johnson, the likelihood of a sustainable compromise appears lower than before […] Our view remains that a no-deal Brexit would have significantly negative credit effects for the UK sovereign and related issuers.’

Pound (GBP) Rises despite Dovish BoE’s Saunders

On Tuesday morning, the Bank of England’s (BoE) usually hawkish Michael Saunders turned unexpectedly dovish.

The BoE policymaker emphasised the weakness of the UK’s economy and noted that it was unclear whether the country would have a smooth exit from the European Union.

Speaking to Bloomberg he noted:

‘The economy right now is clearly not overheating – the underlying pace of growth, stripping out all of the funny effects, inventories, car shutdowns and so forth, is weak and below trend.’

However, while many investors believe the bank will slash interest rates in the case of a no-deal, Saunders said this may not be the case.

He said:

‘It’s hard to know how it would play out with any certainty […] I wouldn’t want to give a strong steer now as to which way policy would go.’

New Zealand Dollar (NZD) Under Pressure as RBNZ Looking at ‘Unconventional’ Monetary Policy

The New Zealand Dollar remained under pressure after the Reserve Bank of New Zealand (RBNZ) released information following a request from Bloomberg News.

The information revealed the bank is at a ‘very early stage’ in refreshing its ‘unconventional monetary policy strategy.’

The Reserve Bank noted its work was at a very early stage and that it is withholding information to avoid ‘prejudice to the substantial economic interests of New Zealand and to maintain the effective conduct of public affairs through the free and frank expression of opinions by or between officers and employees of the Reserve Bank in the course of their duty.’

Commenting on the impact of this news, Westpac’s Sydney-based Chief Currency Strategist, Robert Rennie said:

‘It’s been very quiet over the last couple of days in the foreign exchange markets generally.

‘In a fairly quiet market, it did feel like the news coming out of Bloomberg did have an impact.’

Pound New Zealand Dollar Outlook: Will Johnson’s Win Cause Further Uncertainty for GBP?

Looking ahead to this evening, the New Zealand Dollar (NZD) could slump against the Pound (GBP) following the release of New Zealand’s trade balance.

If June’s trade balance reveals exports did not rise as high as forecast, it could leave ‘Kiwi’ sentiment dampened.

Meanwhile, further reports of resignations from Conservative Cabinet ministers could cause Sterling to slide.

If there are further resignations, it could cause the Pound New Zealand Dollar (GBP/NZD) exchange rate to fall.

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