GBP to NZD Exchange Rate Ignores US-China Trade Hopes as it Surges on Brexit Hopes

October 11, 2019 - Written by Frank Davies

STORY LINK GBP to NZD Exchange Rate Ignores US-China Trade Hopes as it Surges on Brexit Hopes

Brexit news and speculation dominated the Pound’s movement once again over the past week, and a rise in hopes for a Brexit deal to be met ultimately sent the British Pound to New Zealand Dollar (GBP/NZD) exchange rate surging at the end of the week. Due to the Pound’s sharp moves on Brexit, the trade-correlated New Zealand Dollar’s own benefit from the latest trade news has not been enough to help it avoid losses.

After opening this week at the level of 1.9523, GBP/NZD slipped amid fears of collapsing Brexit negotiations and touched on its worst levels in almost a month, 1.9320.

On Thursday evening though, Brexit optimism surged and so did the Pound. GBP/NZD continued to climb on Friday, hitting a half-month-high of 1.9946.

However, some analysts warn the Pound’s strength may be temporary if Brexit optimism fades again, so more volatility is to be expected for the Pound to New Zealand Dollar exchange rate.

GBP Exchange Rates Surge on Sudden Optimism that Brexit Deal Could be In Sight

It’s been another very volatile week for the Pound, as the state of and outlook of the Brexit process once again sees multiple sudden shifts that lead to sharp movements from the British currency.

At the beginning of the week, the Pound plunged following a contentious call between UK Prime Minister Boris Johnson and German Chancellor Angela Merkel. It led to fears that UK-EU Brexit talks were on the cusp of entirely collapsing.

However, an attempt to find a foothold and salvage talks was made towards the end of the week, as Boris Johnson held a day of talks with Ireland Leader Leo Varadkar.

Following Thursday’s talks, both leaders emerged saying that they could both see a path towards a possible Brexit deal. It was notable for being one of Varadkar’s most optimistic comments of note on an agreement with Johnson so far.

Sterling surged even higher on Friday, as European Council President Donald Tusk also expressed hope that a deal was possible.

However, some analysts did express caution regarding the Pound’s significant surge in demand today. Katya Adler, BBC Europe Editor, said on her Twitter:

‘I hate to be the thrower of cold water but when it comes to new UK proposals, whatever they might be, if PM moves towards EU position on customs, he’s likely to lose most/all DUP +ERG support. New deal must be agreed not only by PM + EU but also by majority of MPs’

NZD Exchange Rates Losses Limited by US-China Trade Hopes

The New Zealand Dollar’s strength has been mixed this week, as the volatile currency’s movement is driven largely by the influential Pound and global trade speculation.

However, the domestic picture for New Zealand Dollar appeal hasn’t been particularly optimistic either.

New Zealand Dollar demand was a little weaker towards the end of the week, as New Zealand’s latest business PMI and retail card spending stats fell short of forecasts.

The business PMI came in with a sharper than expected contraction of 48.4, and electronic retail card spending unexpectedly slowed to just 0.3% year-on-year.

With New Zealand’s domestic support weak and Reserve Bank of New Zealand (RBNZ) interest rate cut bets persisting, the ‘Kiwi’ only saw limited benefit from global shifts in risk-sentiment.

Top-level US-China trade negotiations finally saw a new round of talks this week, and the first day of talks was perceived as positive overall.

As the New Zealand Dollar is a trade-correlated currency, this news did support the ‘Kiwi’ slightly.

However, Brexit news was too influential and ultimately Sterling drove GBP/NZD higher.

GBP/NZD Exchange Rate Forecast: Could Pound Trip and Shed its Gains?

The Pound’s gains towards the end of the week have been highly impressive, but analysts have been quick to express concern that they may not last.

There are many ways the rally could unravel or reverse. UK-Ireland negotiations could quickly sour if leaders fail to reach a solid agreement, and hopes could also fade if UK MPs are unhappy with whatever could be potentially proposed.

There is every chance that there will be further Brexit developments over the weekend, which investors will react to when markets open on Monday morning.

Any fresh fears that there is no deal on the horizon would leave the Pound plummeting, and with just half a month to go until the 31st of October Brexit date the Pound’s focus on Brexit is only likely to deepen.

This will likely leave investors brushing over upcoming UK job, inflation or retail stats unless they are highly surprising.

New Zealand Dollar inflation, due Wednesday, could be much more influential though.

The week’s most notable New Zealand data is expected to show that inflation slowed year-on-year in Q3. If it disappoints investors, Reserve Bank of New Zealand (RBNZ) interest rate cut bets will rise and the New Zealand Dollar will weaken.

Of course, any fresh surprises in US-China trade developments will also influence the Pound to New Zealand Dollar exchange rate.

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TAGS: Pound New Zealand Dollar Forecasts