Pound New Zealand Dollar (GBP/NZD) Exchange Rate Dips as ‘Kiwi’ Rises on Renewed Market Risk Appetite

January 16, 2020 - Written by John Cameron

STORY LINK Pound New Zealand Dollar (GBP/NZD) Exchange Rate Dips as ‘Kiwi’ Rises on Renewed Market Risk Appetite

GBP/NZD Exchange Rate Falls as US-China Trade Deal Boosts New Zealand Dollar

The Pound New Zealand Dollar (GBP/NZD) exchange rate fell by -0.3% today, with the pairing currently trading around NZ$1.963 after the risk-sensitive ‘Kiwi’ was buoyed following the signing of the long-awaited US-China trade deal.

While the deal between Washington and Beijing received a lukewarm response from markets, with Julian Evans-Pritchard describing it as a ‘rehash of existing commitments’, the New Zealand Dollar has nevertheless seen an uptick on renewed risk appetite.

Jeremie Waterman, President of the China Centre at the US Chamber of Commerce, commented:

‘There's a lot of work to do ahead. Bottom line is, they should enjoy today but not wait too long to get back to the table for phase two.’

The US-China trade deal should prevent the two sides from exchanging any more tariffs, which should provide some stability for New Zealand’s economy which relies heavily on trade with China – both New Zealand’s and Australia’s largest trading partner.

In New Zealand economic news, ‘Kiwi’ traders will be awaiting today’s publication of the NZ Business PMI for December, which is expected to ease from 51.4 to 50.6. Any further deterioration in the PMI could, however, weaken the NZD/GBP exchange rate.

GBP/NZD Exchange Rate Eases as BoE Rate Cut Fears Persist

The Pound (GBP) eased against NZD today after yesterday’s publication of the year-on-year UK inflation figure for December fell to a three-year low, sparking off fears that the Bank of England (BoE) could go ahead and slash interest rates on the 30th January.

Michael Saunders, a policymaker at the BoE, commented on Wednesday morning:

‘It probably will be appropriate to maintain an expansionary monetary policy stance and possibly to cut rates further, in order to reduce risks of a sustained undershoot of the two per cent inflation target.’

Brexit uncertainty also continues to hold back the GBP/NZD exchange rate today, with British markets becoming increasingly concerned that the UK and the EU could face a no-deal after the 31st January, when the UK is due to officially leave the EU.

GBP/NZD Outlook: Brexit to Remain in Focus

Pound (GBP) investors will be awaiting tomorrow’s release of December’s UK retail sales figure, which is expected to rise from November’s -0.6% to 0.7%. However, this is not expected to provide much uplift for Sterling, as last month’s sales were mainly due to Christmas sales.

Brexit developments will continue to drive the GBP/NZD exchange rate for the rest of this week. Any signs that the UK could secure a trade deal with the EU post-Brexit would prove GBP-positive.

The New Zealand Dollar will likely continue to be propped up by renewed market risk-appetite, but any signs of US-China relations souring could jeopardise a ‘phase two’ agreement and weaken the risk-averse ‘Kiwi’.

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