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GBP to NZD Exchange Rate Recovers Yesterday’s Losses as Risk-Sentiment Falters

June 9, 2020 - Written by James Fuller

While it initially seemed as though the British Pound to New Zealand Dollar (GBP/NZD) exchange rate could keep on tumbling this week, the pair has seen a modest recovery today. The risk-rally that has been driving New Zealand Dollar gains has paused for a rush to safe havens, but a lack of strong demand for the Pound has limited the pair’s recovery.

After opening last week at the level of 1.9898, GBP/NZD plummeted throughout the week. GBP/NZD ultimately lost a whopping four cents and closed the week near the level of 1.9468.

Then, yesterday, GBP/NZD continued to fall. The pair briefly touched on a low of 1.9380, which was the worst GBP/NZD level since September 2019.

This morning GBP/NZD recovered back to the week’s opening levels again, but its potential for further gains seems limited.

GBP Exchange Rates Limited by Economic Concerns and Brexit Jitters

The Pound had been strong in recent weeks on higher market sentiment. Investors were more willing to take risks again due to hopes that economies would rebound after the coronavirus pandemic, and the Pound has been seen as riskier lately.

According to Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank:

‘Sterling is highly sensitive to these changes in risk sentiment - it’s a more risky currency than it was a couple of months ago and some years ago,’

However, the Pound has been less influenced than the New Zealand Dollar by risk movement. This has led to big GBP/NZD losses as the ‘Kiwi’ capitalises on risk-sentiment.

Global trade tensions have risen today though due to comments made by Chinese officials, which has weighed on the risk-on run of many currencies. This caused the Pound to recover a little against the New Zealand Dollar today.

Sterling’s potential for gains is still limited though, due to domestic concerns.

Investors are uncertain about the British government’s exit strategy for coronavirus quarantine. On top of this, analysts believe that Brexit uncertainty is gradually worsening again.

This is because the UK government will no longer be able to request an extension to the Brexit transition period after July. Fears that Britain’s economy could see a cliff-edge scenario at the end of 2020 are returning.

NZD Exchange Rates Avoid Bigger Losses as New Zealand Coronavirus-Free

Today saw risk-correlated currencies tumble due to fresh trade jitters. However, while the New Zealand Dollar was hit it has held its ground better than some other currencies correlated to risk.

It has only lost yesterday’s gains against the Pound. This is because New Zealand’s domestic coronavirus outlook has given investors more to be optimistic about.

New Zealand Prime Minister Jacinda Arden officially declared New Zealand coronavirus-free.

After no new cases in two weeks, the final case was reportedly cleared up in the past few days. As a result, New Zealand is beginning to relax all its quarantine plans.

Still, while there is reason to be optimistic, there are still clouds ahead in New Zealand’s economic outlook. According to Sharon Zollner, Chief Economist at ANZ New Zealand:

‘We're all enjoying the easing of the disruptions but we can't mistake that for a sign the the upcoming recession won't be bad. It will be’

GBP/NZD Exchange Rate Forecast: Losses Could Resume when Risk-Sentiment Does

The Pound to New Zealand Dollar exchange rate’s potential for gains is limited.

As the Pound’s appeal is weighed by Britain’s coronavirus outlook, and New Zealand’s optimistic outlook is supporting the ‘Kiwi’, it may not be long before the pair begins to fall again.

While the Pound could benefit slightly from a potential resumption in the market’s risk rally, the New Zealand Dollar would benefit even more strongly.

Rising Brexit fears may also continue to weigh on the Pound’s outlook.

New Zealand’s Q1 manufacturing sales data will be published tomorrow, but may not have much impact on the Pound to New Zealand Dollar exchange rate outlook unless it impacts the New Zealand economic outlook somehow.
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