Pound New Zealand Dollar (GBP/NZD) Exchange Rate Edges Higher as Risk-Off Markets Weigh on ‘Kiwi’

June 16, 2020 - Written by John Cameron

STORY LINK Pound New Zealand Dollar (GBP/NZD) Exchange Rate Edges Higher as Risk-Off Markets Weigh on ‘Kiwi’

GBP/NZD Exchange Rate Edges Higher as Gloomy Fed Weighs on Risky Assets

The Pound to New Zealand Dollar (GBP/NZD) exchange rate rose by 0.7% today, with the pairing currently trading around NZ$1.95.

The New Zealand Dollar (NZD) suffered from a sell-off of risky-assets today after the US Federal Reserve’s Chair Jerome Powell gave a dovish testimony before Congress. Again, he reiterated the Fed’s uncertainty over America’s economic recovery from the coronavirus crisis.

Mr Powell commented:

‘The levels of output and employment remain far below their pre-pandemic levels, and significant uncertainty remains about the timing and strength of the recovery.’
‘Much of that economic uncertainty comes from uncertainty about the path of the disease and the effects of measures to contain it. Until the public is confident that the disease is contained, a full recovery is unlikely.’

As a result, the ‘Kiwi’ has suffered from dampened risk appetite, with investors now fearing the worst for the global economy. Any further hints that the US – the world’s largest economy – could suffer a significant downturn would drag down global market confidence.

In New Zealand’s economic news, today saw the release of the NZ GDT Price Index, which rose above forecasts from 0.1% to 1.9%. With dairy being one of New Zealand’s largest commodities, this brought some hope for the nation’s economic recovery.

Pound (GBP) Rises as UK Unemployment Holds in May

The Pound (GBP) rose against the New Zealand Dollar (NZD) today after the UK’s ILO unemployment rate unexpected held at 3.9%.

Pantheon Macroeconomics’ Samuel Tombs commented that this has proved Downing Street’s coronavirus job retention scheme had been a success and had ‘[prevented’ massive job losses so far’.

Tony Wilson, the director of the Institute for Employment Studies, was more pessimistic, saying:

‘If the public health crisis is just starting to ease, today’s figures show that the unemployment crisis is only just beginning.’

‘There can be no doubt now that we are on course for claimant unemployment of 3 million by next month, and it may well reach the highest ever recorded.’

However, with UK non-essential shops now reopened following months of closure due to the coronavirus pandemic, we could see employment and the UK economy continue to improve.

GBP/NZD Outlook: Could Risk-Off Markets Drag ‘Kiwi’ Down Further?

Pound (GBP) traders will be looking ahead to tomorrow’s release of the UK CPI figure for May. However, if this continues to ease, then we could see Sterling fall.

Tomorrow will also see the release of New Zealand’s final GDP figure for the first quarter. However, if this confirms consensus and falls by -1%, we could continue to see the ‘Kiwi’ suffer.

The New Zealand Dollar (NZD) will be dictated by risk-sentiment this week. Any further signs of an unsteady global economy would prove NZD negative.

The GBP/NZD exchange rate could continue to rise, however, if Downing Street drops any further hints at easing its lockdown measures. As a result, we could see Sterling continue to rise against riskier assets like NZD.

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TAGS: Pound New Zealand Dollar Forecasts