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GBP to NZD Exchange Rate Struggles to Hold Gains amid Brexit Fears and Lack of Trade War News

August 20, 2019 - Written by Frank Davies

While the British Pound to New Zealand Dollar (GBP/NZD) exchange rate has sustained most of the gains seen last week, its advance appears to have come to an end and the pair is struggling to hold its best levels. The latest fears that a no-deal Brexit is possible, combined with investors taking a breather from US-China trade jitters, left the pair slightly lower today.

Last week was a surprisingly bullish one for GBP/NZD, as the pair opened the week at the level of 1.8592 and gained an impressive three cents to close the week at the level of 1.8892. GBP/NZD has slipped since then and currently trends closer to the level of 1.8864, but the pair is still trending near these levels for the longest period since early July.

Investors are hesitant to sell the Pound too much, as hopes that UK opposition parties could block a no-deal Brexit have also risen in the past week, and the New Zealand Dollar outlook also remains pressured by Reserve Bank of New Zealand (RBNZ) interest rate cut speculation.

GBP Exchange Rates Recoil as No-Deal Brexit Fears Persist

Hopes that Britain’s opposition political parties, including the primary opposition Labour Party as well as other parties like the Liberal Democrats and Scottish National Party (SNP), could cooperate to prevent a no-deal Brexit led to Pound gains last week.

However, while this helped the Pound to rebound from its worst levels, concerns about the possibility of a no-deal Brexit persisted and continued to cast significant concern over the Pound and UK outlooks.

As a result, Sterling recoiled from last week’s gains yesterday as its rally came to an end. Then, today’s latest Brexit developments put additional fresh pressure on the British currency.

UK Prime Minister Boris Johnson wrote a letter to European Council President Donald Tusk, looking to negotiate a fresh Brexit deal that would not include the controversial Irish backstop.

The EU has repeatedly said that a deal without the backstop is not possible, and once again rejected Johnson’s request. Donald Tusk said in a tweet today:

‘The backstop is an insurance to avoid a hard border on the island of Ireland unless and until an alternative is found. Those against the backstop and not proposing realistic alternatives in fact support reestablishing a border. Even if they do not admit it.’

NZD Exchange Rates Steady as US-China Trade War Fears Take a Breather

Concerns about developments in the US-China trade war dominated market movement for relatively risky trade-correlated currencies like the New Zealand Dollar last week.

As New Zealand’s economy heavily relies on trade, the New Zealand Dollar is sensitive to trade news. This has left it unappealing amid the recent rise in US-China trade war fears.

This, combined with expectations for the Reserve Bank of New Zealand (RBNZ) to become even more dovish, have led to weeks of poor performance in NZD.

However, some hopes that the US and China will maintain a dialogue over trade tensions have left investors a little more optimistic.

This has helped the New Zealand Dollar to steady slightly this week, following last week’s slump. According to Peter Cavanaugh, Senior Client Advisor at Bancorp Treasury Services:

‘There’s a slight improvement in sentiment and a hope that the China-US trade talks aren’t damned to eternity,’

GBP/NZD Exchange Rate Forecast: New Zealand Retail Sales and Global Central Bank Speculation in Focus

While this week’s GBP/NZD losses have been more due to Pound weakness on Brexit fears so far, the pair is more likely to be driven by New Zealand Dollar movement towards the end of the week.

The New Zealand Dollar has been influenced more by global trade and growth fears recently, so if upcoming New Zealand data beats forecasts it could bolster hopes for New Zealand economic resilience and lead to ‘Kiwi’ gains.

New Zealand Dollar investors are looking ahead to Friday’s Asian session, when New Zealand retail sales results from Q2 will be published.

If New Zealand’s retail sector performed better than expected, Reserve Bank of New Zealand (RBNZ) interest rate cut bets could lighten slightly.

However, RBNZ speculation could also be influenced by other central bank news at the end of the week, amid the global Central Bank Symposium at Jackson Hole.

Brexit developments will continue to be the primary cause of Pound movement, though upcoming UK public borrowing and trade data could also influence the Pound to New Zealand Dollar exchange rate.
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