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Pound New Zealand Dollar (GBP/NZD) Exchange Rate Flat as US-China Trade Deal Safe ‘For Now’

June 1, 2020 - Written by John Cameron

Pound Sterling New Zealand Dollar (GBP/NZD) Exchange Rate Muted as Risk Appetite Improves

The Pound Sterling New Zealand Dollar (GBP/NZD) exchange rate remained flat on Monday afternoon. This left the pairing trading at around NZ$1.9859.

The pairing remained flat at the start of the week as both currencies benefitted from an upswing in risk appetite. Britain relaxed lockdown restrictions while markets became more optimistic about US-China relations.

The New Zealand Dollar was offered support as tensions between the US and China cooled.

Risk appetite improved on Monday as the United States’ response to Beijing’s new security law for Hong Kong was less severe than expected.

US President Donald Trump began the process for ending special treatment of Hong Kong, although stopped short of introducing new tariffs or sanctions. This buoyed risk appetite and left the pairing flat.

In President Trump’s speech on Friday he did not mention the US-China trade deal when he revealed the US would begin to dismantle trade and travel privileges for Hong Kong.

Commenting on this, former US trade negotiator and current senior counsel with Arnold and Porter law firm, Claire Reade said:

‘Probably the most significant thing from the trade perspective is that the Phase 1 trade deal is – for now anyway – unaffected.’

Traders were optimistic that a trade deal between Washington and Beijing would not be abandoned and according to TD Securities’ senior EM strategist, Mitul Kotecha:

‘Markets appeared to be relieved at the lack of more aggressive, or at least more specific, actions from the U.S. administration. This provides strong clues as to how things will look in the weeks ahead of the US election [in November].’

Pound (GBP) Flat Ahead of Fourth Round of UK-EU Brexit Talks

Sterling was able to rise to a three-week high against the safe-haven US Dollar (USD) at the start of this week’s session.

However, GBP remained flat against the New Zealand Dollar as the Dollar’s weakness also benefitted the risk-sensitive NZD.

New rules to ease the lockdown in England came into force today, buoying GBP despite warnings from scientists this move from Boris Johnson’s government was too risky.

Added to this, Sterling made gains today as this week will see the fourth round of Brexit talks between the UK and European Union are also scheduled to begin this week.

The British government now has until 1 July to ask for an extension to the current Brexit transition period.

However, Sterling gains were limited by a range of factors, including Brexit worries as the country gets closer to the deadline and Britain’s growing coronavirus death toll.

Added to this, GBP struggled to make gains against the ‘Kiwi’ as traders continued to worry about the Bank of England (BoE) taking rates below zero for the first time.

In a note to clients, Lee Hardman, MUFG currency analyst wrote:

‘We expect the Pound to continue to trade at weaker levels in the near-term unless there is a surprise breakthrough in Brexit talks and/or the BoE clearly rules out negative rates after completing their ongoing review of policy options.’

Pound New Zealand Dollar Outlook: Brexit and Negative Rates Remain in Focus

Looking ahead, the New Zealand Dollar (NZD) could suffer losses against the Pound (GBP) following the release of New Zealand import and export price data.

If both import and export prices plummet further than expected in the first three months of 2020 due to the coronavirus pandemic, the ‘Kiwi’ will slide.

Meanwhile, the Pound could continue to struggle to make significant gains against the New Zealand Dollar as traders continue to fret about Brexit discussions and negative interest rates.

If markets continue to focus on the Bank of England (BoE) taking rates into negative territory and Brexit pessimism, the Pound New Zealand Dollar (GBP/NZD) exchange rate will remain flat.

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