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GBP to NZD Exchange Rate Movement Limited Ahead of New Zealand General Election

October 16, 2020 - Written by Tim Boyer

Investors are hesitant to move too much on the British Pound to New Zealand Dollar (GBP/NZD) exchange rate today, as markets await potentially major Brexit developments as well as the weekend’s New Zealand General Election. While an extension to UK-EU Brexit negotiations is widely expected and the New Zealand General Election is expected to go smoothly, the uncertainty around these major political events is still limiting the pair’s movement.

Last week saw gains in GBP/NZD, as Brexit hopes pushed Sterling higher and the New Zealand Dollar was weighed buy Reserve Bank of New Zealand (RBNZ) concerns. It left GBP/NZD climbing from the level of 1.9483 to 1.9553 throughout the week.

This week though, GBP/NZD movement has seen even sharper fluctuations. After attempting to advance, GBP/NZD tumbled again and touched its worst levels since the beginning of the month.

GBP/NZD has since rebounded from those lows. At the time of writing on Friday, GBP/NZD trends closer to the week’s opening levels again.

GBP Exchange Rates Edge Higher on Anticipation Brexit Talks Will Be Extended

Hopes that the UK government will agree to extend Brexit negotiations are boosting the Pound’s appeal at the end of the week.

Today, these hopes are helping the Pound to hold above the week’s opening levels. UK Prime Minister Boris Johnson is still widely expected to agree to extend UK-EU Brexit negotiations into November.

This was despite yesterday’s comments from EU officials causing concern that bloc’s strict negotiation stances could make it more likely that the UK government could still walk away from talks.

According to Derek Halpenny, Head of Research at MUFG:

‘There are so many conflicting signals coming from Brussels it is hard to conclude what the ‘mood music’ is. But it’s probably true to say the ‘mood music’ soured a little yesterday,

We see GBP price action as consistent with a reasonable degree of hope on a deal being done,’

Reports have started to emerge that PM Johnson will indeed agree to continuing negotiations, but negotiators have expressed surprise at the EU’s demands.

According to UK Foreign Secretary Dominic Raab:

‘We’ve been told that it must be the UK that makes all of the compromises in the days ahead, that can’t be right in a negotiation, so we’re surprised by that but the prime minister will be staying more on this later today.

Having said that, we are close. With goodwill on both sides we can get there.’

NZD Exchange Rates Weaker on Risk-Aversion Rather than Election Uncertainty

The New Zealand Dollar has been generally unappealing this week. However, this has been largely due to market risk-aversion from global coronavirus fears and US politics.

The global coronavirus pandemic is seeing a worse than expected second wave, which is causing revived recession fears in many major economies. Investors are increasingly hesitant to take risks as a result.

Meanwhile, expectations for US fiscal stimulus have faded. Markets now don’t expect stimulus to be agreed until after the upcoming US Presidential Election.

As the New Zealand Dollar is a currency often correlated to market risk and trade sentiment, this has left the ‘Kiwi’ unappealing this week.

In fact, these factors are taking focus for NZD over New Zealand’s own upcoming General Election.

New Zealand citizens will vote in the nation’s 2020 General Election tomorrow. Rather than being a source of uncertainty though, New Zealand Prime Minister Jacinda Ardern remains popular and is widely expected to secure a strong win.

While New Zealand politics haven’t been hurting the ‘Kiwi’ much, rising bets that the Reserve Bank of New Zealand (RBNZ) could introduce negative interest rates are weighing on the currency.

GBP/NZD Exchange Rate Forecast: Political and Coronavirus Developments in Focus

Until there are some more solid political developments, GBP/NZD movement is expected to remain mixed and limited.

Pound investors are eagerly awaiting solid confirmation over whether or not UK-EU Brexit negotiations will continue.

Investors are more likely to buy the Pound higher if negotiations are extended. Sterling could gain further if there are optimistic developments in Britain’s coronavirus situation.

However, coronavirus concerns could keep the Pound weak even if Brexit optimism rises.

It is widely speculated that as Britain’s coronavirus situation worsens, the chances of a second national lockdown are becoming more likely.

Meanwhile, the New Zealand Dollar will be driven by US politics and global coronavirus developments that could influence risk-sentiment.

The weekend’s New Zealand General Election will of course be closely watched, but it is not expected to have much impact on the Pound to New Zealand Dollar exchange rate.
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