US-Sino Tensions Leaves the Pound New Zealand Dollar (GBP/NZD) Exchange Rate Flat

May 22, 2020 - Written by John Cameron

STORY LINK US-Sino Tensions Leaves the Pound New Zealand Dollar (GBP/NZD) Exchange Rate Flat

Pound Sterling New Zealand Dollar (GBP/NZD) Exchange Rate Muted as US-China Tensions Dominate Markets

The Pound Sterling New Zealand Dollar (GBP/NZD) exchange rate remained flat on Friday, leaving the pairing trading at around NZ$1.9929.

The risk-sensitive New Zealand Dollar remained under pressure today after US-Sino tensions boosted demand for safe-haven currencies.

Tensions increased after President Donald Trump said the US would react ‘very strongly’ to new Chinese legislation on Hong Kong.

Meanwhile, domestic data also weighed on the ‘Kiwi’ as data showed retail sales plummeted by -0.7% in the first quarter. Annually, sales increased by 2.3%.

Statistics NZ showed spending on vehicles, eating out and accommodation away from home slumped in the first quarter in the run-up to the coronavirus lockdown.

Commenting on the data, Stats NZ retail statistics manager, Kathy Hicks noted:

‘This is the largest fall in total volume sales in eight years. Efforts to slow the spread of COVID-19 led to the closure of all non-essential businesses from midnight March 25. This hit car yards, takeaways, restaurants, hotels and motels hard, with sales dropping sharply. These falls may continue into the June 2020 quarter, with a record fall in monthly electronic card sales already reported for April, as many businesses went into hibernation because of the COVID-19 lockdown.’

Government’s £62.1 Billion Public Borrowing Weighs on the Pound (GBP)

Sterling remained muted against the ‘Kiwi’ after data revealed that the UK’s government borrowed the most on record last month. Public debt in the country was pushed near 100% of economic output.

Borrowing from the government increased to £62.1 billion. This was six times higher compared to borrowing in April 2019 and weighed on Sterling.

Added to this, March’s borrowing increased to almost £15 billion due to the government’s furlough scheme.

Commenting on this, Capital Economics’ Paul Dales noted:

‘With little prospect of a swift return this year towards pre-crisis levels of economic activity, we expect borrowing to total £340bn (17.5% of GDP) over 2020/21, which would be over £40bn more than the OBR’s forecast.

‘Overall, the small easing of the lockdown on 13th May probably means that retail sales started to edge higher in May and that the government might not have had to borrow quite as much as in April. But it’s very clear that the retail activity will remain worrying weak for some time yet and that the government will have to borrow a few hundred billion pounds this year.’

British Retail Sales Tumble by Highest Level on Record

Meanwhile, Sterling sentiment was also left under pressure after UK retail sales tumbled by the most on record.

Britain’s retail sector was hit as Boris Johnson’s government closed most of the economy and introduced lockdown measures in April. This caused sales volumes to plummet by -18.1% last month.

Sterling sentiment was also left under pressure after analysts noted that they do not expect there to be a rapid bounce-back for retailers once the lockdown is lifted.

Although, Lisa Hooker, consumer markets leader at PwC, hopes that the worst may be over, and noted:

‘However bad April’s figures are, we believe that retail has reached a turning point in the Covid-19 crisis. In the short term, May has already seen a loosening of lockdown restrictions across all the home nations. Indeed, enterprising operators have begun to reopen cautiously, from garden centres to some furniture stores coming back for the bank holiday weekend.’

Pound New Zealand Dollar Outlook: Will US-China Tensions Send NZD Lower?

Looking ahead to the start of next week, the New Zealand Dollar (NZD) could suffer losses against the Pound (GBP) if trade tensions between the US and China increase.

If tensions continue to simmer between Washington and Beijing, and President Donald Trump makes further comments, the risk-sensitive ‘Kiwi’ will be left under pressure.

Meanwhile, traders are likely to focus on Monday’s New Zealand trade balance data.

If data reveals the coronavirus has caused the country’s exports to plummet in April, the Pound New Zealand Dollar (GBP/NZD) exchange rate will edge higher.

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TAGS: Pound New Zealand Dollar Forecasts