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Pound Sterling New Zealand Dollar (GBP/NZD) Exchange Rate Rises despite ‘Smokescreen’ UK Services PMI Growth

August 5, 2019 - Written by John Cameron

Pound New Zealand Dollar (GBP/NZD) Exchange Rate Edged Up as UK Service PMI Jumps to Nine-Month High

The Pound Sterling New Zealand (GBP/NZD) exchange rate rose, and the pairing is currently trading at an inter-bank rate of NZ$1.8666.

On Monday, data showed UK business activity growth rose to a nine-month high.

The UK services PMI edged up from near-stagnation in June to 51.4 in July, with the modest increase in the PMI was led by a rebound in new work.

However, domestic political uncertainty held back client’s decision-making.

Added to this, the index was still below the trend record since recovery from the global financial crisis.

Commenting on this, Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply noted:

‘While services activity grew in July, this marginal improvement on last month is a smokescreen. Fundamental weakness remain in a sector pinned down by Brexit uncertainty and increasingly stagnant global economic growth.

‘Supply chain managers voiced grave concerns that without a sustained period of stability, this will amplify the risk to the largest contributor to UK GDP and services could follow the construction and manufacturing sectors into contraction territory within a few short months.’

New Zealand Dollar (NZD) Falls as Chinese Yuan Falls to Decade Low

The New Zealand Dollar was left under pressure as trade tensions between the US and China increased.

On Monday, Beijing allowed the Chinese Yuan to fall below the key seven-per-dollar level for the first time in over a decade.

This comes just days after US President Donald Trump announced the US would slap 10% tariffs on $300 billion of Chinese imports from 1 September.

The People’s Bank of China (PBOC) provided early impetus by setting a daily rate at its weakest level in eight months.

This left the risk-sensitive ‘Kiwi’ under pressure as the central bank linked the Yuan’s weakness to trade tensions.

The PBOC stated:

‘Under the influence of factors including unilateralism, protectionist trade measures, and expectations of tariffs against China, the Yuan has depreciated against the Dollar today, breaking through 7 Yuan per Dollar.’

NZD Under Pressure as Chinese Yuan Likely to Weaken Further

The depreciating Chinese Yuan further intensified trade tensions between Washington and Beijing.

With escalating tensions, China has fewer reasons to maintain stability of the Yuan and analysts have stated they expect the currency to continue to weaken.

Commenting on the tensions, Chief Market Strategist at FXTM, Hussein Sayed stated:

'The PBoC has spent hundreds of billions of dollars over the past couple of years to prevent their currency from breaching this key level, but now that doesn’t seem to be the case. In fact, the currency tool may be very effective as it significantly offsets the impact of US tariffs. If the Chinese currency falls by another 8 per cent from the current level, the 10 per cent tariffs paid by US importers will be offset by the Renminbi’s weakness.'

Pound New Zealand Dollar Outlook: Will NZD Slide as Unemployment Rises?

Looking ahead to this evening, the New Zealand Dollar (NZD) could slide against the Pound (GBP) following the release of the New Zealand unemployment rate.

If unemployment edges up in the second quarter it could weigh on the ‘Kiwi’.

Meanwhile, the ‘Kiwi’ could be left under pressure ahead of the New Zealand Global Dairy Trade (GDT) Price Index.

If dairy prices continue to slump, the Pound New Zealand Dollar (GBP/NZD) exchange rate could rise.

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