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Pound New Zealand Dollar (GBP/NZD) Exchange Rate Rallies as US-China Tensions Fuel Risk

May 29, 2020 - Written by Frank Davies

Modest Improvement in Consumer Confidence Fails to Dent Pound New Zealand Dollar (GBP/NZD) Exchange Rate

A modest uptick in the ANZ consumer confidence index was not enough to prevent the Pound New Zealand Dollar (GBP/NZD) exchange rate from rallying ahead of the weekend.

As geopolitical tensions surrounding Hong Kong continued to mount the mood towards the risk-sensitive New Zealand Dollar generally soured.

With the US and China looking at increasing risk of entering a fresh trade dispute over the imposition of a new controversial security law on Hong Kong investors were encouraged to adopt a more cautious outlook.

If fresh trade sanctions result from the spat this could disrupt the potential for the global economy to bounce back from the Covid-19 crisis in the second half of the year.

The threat of global trade conditions weakening further in the weeks ahead left investors with little incentive to buy into the New Zealand Dollar on Friday.

UK-China Political Tensions Put a Lid on GBP/NZD Exchange Rate as Trade Worries Escalate

Support for the Pound weakened, meanwhile, as political tensions between the UK and China showed signs of picking up.

Growing unrest over the situation in Hong Kong and Beijing’s decision to impose a controversial new security law fuelled anxiety over the risk of a souring in trade relations.

With the UK already looking to face significant trade disruption as the end of the Brexit transition period draws nearer this limited the appeal of the Pound.

Even so, in the face of the wider deterioration in risk appetite GBP exchange rates were able to find some traction as investors saw limited potential for further selling.

As long as May’s UK manufacturing PMI remains firmly in contraction territory on Monday, though, the chances of further GBP/NZD exchange rate gains look limited.

Until markets see evidence that the UK economy could bounce back from the negative impact of the Covid-19 crisis the strength of the Pound may prove muted.

Softer Terms of Trade Index Forecast to Weigh on NZD Exchange Rates

Further volatility could be in store for the New Zealand Dollar, meanwhile, if the first quarter New Zealand trade data fails to impress.

As forecasts point towards a quarterly contraction in the export price index, driven by the disruption caused by the current pandemic, NZD exchange rates look vulnerable to selling pressure.

A weaker terms of trade index would limit confidence in the outlook of the New Zealand economy, giving the GBP/NZD exchange rate an opportunity to rally.

While New Zealand has made early progress towards reopening its economy in the wake of the Covid-19 lockdown this may not be enough to offset an underwhelming set of trade figures.
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