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Pound New Zealand Dollar Exchange Rate Sinks, Could the DUP Jeopardise Boris Johnsons’ UK-EU Brexit Deal?

October 17, 2019 - Written by John Cameron

GBP/NZD Exchange Rate Falls, UK-EU Brexit Deal Doubts Increase

The Pound New Zealand Dollar (GBP/NZD) exchange rate plunged by -0.9% today, with the pairing currently trading around NZ$2.020 after the Democratic Unionist Party (DUP) jeopardised Prime Minister Boris Johnson’s UK-EU Brexit deal after announcing that it ‘drives coach and horses’ through the Good Friday Agreement.

The DUP also said in this morning’s statement:

‘As things stand, we could not support what is being suggested on customs and consent issues, and there is a lack of clarity on VAT.’

However, with backing from the 10 DUP MPs being essential for Boris Johnson’s deal to pass successfully through Parliament, UK markets are becoming increasing political uncertainty ahead of the October 31 deadline.

Labour leader Jeremy Corbyn was also critical of the deal, saying:

‘From what we know, it seems the prime minister has negotiated an even worse deal than Theresa May’s, which was overwhelmingly rejected. These proposals risk triggering a race to the bottom on rights and protections: putting food safety at risk, cutting environmental standards and workers’ rights, and opening up our NHS to a takeover by US private corporations.’

In UK economic news, today saw the release of September’s UK retail sales figure, which flat-lined on the month at 0%. However, with Brexit news driving market movements today, economic data has had little effect on the GBP/NZD exchange rate.

NZD/GBP Exchange Rate Rises on Improving US-China Trade Discussions

The New Zealand Dollar (NZD) benefited from a risk-on market attitude today after US-China trade negotiations progressed, with China now willing to meet a partial deal with the US that would include ‘progress in the direction of cancelling all tariffs’.

China’s ministry spokesman, Gao Feng, commented:

‘China’s market size is huge, and if we can end the trade war and lift all additional tariffs, it will help to deepen trade cooperation in many areas, including agriculture… That fully shows that there is no winner in the trade war, the trade war is neither in line with the interest of China and the US, nor the interest of the whole world.’

With China being New Zealand’s largest trading partner, this has renewed market confidence in the NZ economy. However, with rising speculation over a rate cut from the Reserve Bank of New Zealand (RBNZ) next month, some ‘Kiwi’ traders are remaining cautious.

GBP/NZD Outlook: Sterling Could Sink on Further Brexit Uncertainty

New Zealand Dollar (NZD) traders will continue to focus on US-China and global trade developments for the rest of this week, with no NZ economic data due to be released until next week. Any signs of the US and China confirming a partial trade deal could further boost the NZD/GBP exchange rate.

Meanwhile, the GBP/NZD exchange rate will continue to be driven by Brexit developments. However, with optimism slipping Boris Johnson being able to secure a Parliamentary majority for his new UK-EU Brexit deal, we could see the Pound remain subdued ahead of Saturday’s likely House of Commons vote.

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