September 4, 2020 - Written by John Cameron
STORY LINK Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Dips as UK Construction PMI Signals a ‘Setback’
GBP/NZD Exchange Rate Falls on Lingering Brexit Uncertainty
The Pound to New Zealand Dollar (GBP/NZD) exchange rate fell by -0.3% today, with the pairing currently trading around NZ$1.975.
Sterling suffered today following the release of August’s UK Construction PMI, which undershot forecasts and fell from 58.1 to 54.6. As a result, GBP investors have become increasingly concerned for the UK’s construction sector as it appears to lose steam.
Tim Moore, the Economics Director at HIS Markit, commented on today’s data:
‘The latest PMI data signalled a setback for the UK construction sector as the speed of recovery lost momentum for the first time since the reopening phase began in May… The main reason for the slowdown in total construction output growth was a reduced degree of catch-up on delayed projects and subsequent shortages of new work to replace completed contracts in August.’
GBP also suffered from yesterday’s underwhelming UK Services PMI, which printed below forecasts and sparked concerns over Britain’s job market and its largest, most lucrative sector.
Meanwhile, growing uncertainty over UK-EU trade negotiations has left the GBP/NZD exchange rate under pressure. This follows comments from Michel Barnier, the EU’s Chief Negotiator, who said that he was ‘worried’ about the lack of progress towards a post-Brexit trade deal in December.
New Zealand Dollar (NZD) Rises Despite Concerns Over Negative Interest Rates
The New Zealand Dollar (NZD) edged higher despite concerns of negative interest rates from the Reserve Bank of New Zealand (RBNZ). Wednesday saw the RBNZ warn that its policy rates may go into below-zero territory to revive New Zealand’s coronavirus-ravaged economy.
Analysts at Reuters commented:
‘Underlining policymakers’ readiness to step-up support, the RBNZ said it is also actively considering a package of additional monetary tools, including negative interest rates and low-cost funding to banks. The purchase of foreign assets also remain an option.’
Meanwhile, the outlook for the ‘Kiwi’ has become more positive following the RBNZ’s Governor stating that he sees no concern for the level of the New Zealand currency.
Added to this, NZD investors are becoming more confident that New Zealand could stage an economic recovery after China - New Zealand’s largest trading partner – has effectively agreed to honour the US-China Phase One trade agreement.
As a result, the risk-averse ‘Kiwi’ has benefited from rising hopes that US-China trade relations could improve in the near-term. Nevertheless, with the US elections fast approaching, NZD traders are remaining somewhat cautious as trade tensions could easily erupt in the run-up to elections.
GBP/NZD Forecast: Could Brexit Concerns Drag Down Sterling?
Pound (GBP) investors will be looking ahead to Monday’s release of August’s UK BRC Retail Sales figure, which is forecast to rise from 4.3% to 5.7%. As a result, we could see Sterling head higher as hopes for Britain’s economic recovery increase.
New Zealand Dollar (NZD) traders will be looking ahead to Wednesday’s release of the NZ ANZ Business Confidence report for September. If this continues to remain in negative territory, however, we could see the GBP/NZD exchange rate edge higher.
The GBP/NZD exchange rate will continue to be influenced by UK-EU Brexit developments. However, any signs of the impasse remaining over a possible trade deal would prove GBP-negative.
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