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GBP to NZD Exchange Rate Struggles to Gain as New Zealand Election Boosts ‘Kiwi’

October 19, 2020 - Written by James Fuller

Despite concerns that the UK government has said it has walked away from UK-EU Brexit negotiations, the British Pound to New Zealand Dollar (GBP/NZD) exchange rate has avoided losses today. Still, unlike other Pound pairings the pair has not seen particularly noteworthy gains. This is because the New Zealand Dollar is being boosted by a combination of higher risk-sentiment, as well as market reaction to the weekend’s New Zealand General Election.

Last week saw mixed, volatile movement in GBP/NZD. GBP/NZD opened the week at the level of 1.9552 and ultimately closed the week just around this level.

GBP/NZD dipped in the middle of the week, touching a low of 1.9354. This was the worst level since the beginning of October.

This week, GBP/NZD has continued to see mixed movement. GBP/NZD dipped after markets opened, but at the time of writing the pair is trending slightly higher. At the time of writing on Monday afternoon, GBP/NZD is trending above the week’s opening levels in the region of 1.9575.

GBP Exchange Rates Boosted by Hopes for Brexit Deal

Last week, the UK government indicated that it would walk away from UK-EU Brexit negotiations unless the EU softened its stances on various deal conditions.

This caused some Pound weakness, but overall the British currency has been able to hold its ground despite this sudden rise in no-deal Brexit fears.

This is because despite the threat of a no-deal Brexit, markets continue to bet that the UK and EU will still reach some kind of Brexit deal.

According to Analysts at MUFG, Markets still generally expect that a deal will be reached:

‘The lack of pound weakness strongly suggests that market participants continue to believe that a trade deal will be reached and are not overly concerned by the latest political posturing. Michael Barnier and David Frost are expected to seek a way out of the latest Brexit impasse when they meet today.

Market participants have welcomed a report from Bloomberg that suggest British officials are prepared to water down the controversial Internal Market Bill in a move that could help improve trade negotiations with the EU.’

In fact, some analysts speculate that UK coronavirus uncertainties are doing more to weaken the Pound outlook than Brexit uncertainties are. Analysts at TD Securities believe that the pandemic could be a bigger factor for Pound movement next year than the outcome of Brexit.

NZD Exchange Rates Strengthen on New Zealand Prime Minister’s Landslide Win

The New Zealand Dollar was unappealing on market safe haven demand last week, but the currency is seeing stronger demand today.

As the New Zealand Dollar is commonly correlated with market risk and trade sentiment, it has benefitted from today’s rise in market risk-sentiment.

Investors were more willing to take risks again after news that China’s economy was successfully rebounding from the coronavirus pandemic.

On top of market risk-sentiment boosting the New Zealand Dollar, investors were also relieved by the weekend’s New Zealand General Election results.

New Zealand Prime Minister Jacinda Ardern won a historic majority for her Labour Party in the election. While her win was not a shock to investors, analyst noted it was still New Zealand Dollar positive overall.

According to Strategists at Westpac:

‘there's potential for further modest gains during the day (and) the multi-month outlook remains positive, with potential to rise towards 0.6800 – the top of a multi-month range,’

GBP/NZD Exchange Rate Forecast: Brexit Developments Remain in Focus

For now, the Pound is advancing on bets that a UK-EU Brexit deal will still be made, despite the tough stances shown by UK officials.

While talks are likely to be limited, they will continue in the coming sessions. Any signs that progress is being made despite Britain’s brinksmanship will likely lead to stronger demand in the Pound.

On the other hand, if UK-EU relations continue to worsen, the Pound may be in for losses and GBP/NZD will struggle to hold its ground.

Meanwhile, the New Zealand Dollar will be driven by market risk-sentiment in the coming sessions.

If investors become more hesitant to take risks amid worsening coronavirus or US political uncertainties, the New Zealand Dollar is likely to weaken as safe haven demand would rise.

Of course, optimistic coronavirus news could boost risk-sentiment instead and this may put further pressure on the Pound to New Zealand Dollar exchange rate.
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