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Pound New Zealand Dollar (GBP/NZD) Exchange Rate Trends Lower in Spite of Smaller UK Retail Sales Contraction

December 18, 2020 - Written by Frank Davies

Better-than-Expected UK Retail Sales Fail to Support Pound New Zealand Dollar Exchange Rate

A smaller-than-expected decline in UK retail sales growth was not enough to keep the Pound to New Zealand Dollar (GBP/NZD) exchange rate from losing traction ahead of the weekend.

While sales growth contracted -3.8% on the month, reflecting the impact of the second national lockdown, this still proved better than forecasts of a -4.2% decline.

Even coupled with a slight positive revision to October’s sales figure, though, this failed to give the Pound any fresh boost against its rivals.

Increasing doubt over the possibility of a UK-EU trade deal emerging in the final few hours of talks instead put pressure on GBP exchange rates.

With investors once again factoring in the possibility of the Brexit transition period ending without any agreement in place the appeal of the Pound naturally weakened.

Support for the New Zealand Dollar, meanwhile, strengthened on the back of a surprise return to positive territory for December’s ANZ business confidence index.

Surprisingly Positive Business Confidence Boosts New Zealand Dollar Demand

NZD exchange rates found support as the business confidence index surged from -6.9 to 9.4 on the month, indicating a widespread improvement in economic sentiment.

This suggests that the New Zealand economy remained on a relatively strong footing compared to its rivals in the final month of the year.

With the Covid-19 pandemic having a less pronounced impact on the New Zealand economy the New Zealand Dollar found fresh traction heading into the weekend.

However, if November’s credit card spending data shows another sharp decline on Monday this could see NZD exchange rates coming under pressure once again.

Evidence of weaker consumer spending may limit confidence in the outlook of the fourth quarter gross domestic product, diminishing the odds of a stronger showing.

Any fresh deterioration in the general sense of market risk appetite could also see the New Zealand Dollar falling out of favour with investors in the near term.

Improved CBI Distributive Trades Index May Support GBP/NZD Exchange Rate

While developments surrounding the Brexit situation look set to dominate the outlook of the Pound for the foreseeable future the GBP/NZD exchange rate could find a rallying point next week.

With forecasts pointing towards the CBI distributive trades index rising from -25 to just -4 in December the mood towards the Pound could improve.

A solid increase in the index would encourage hopes that the UK economy began to shake off some of the impact of the second national lockdown this month, in spite of ongoing restrictions.

As long as the economy can demonstrate greater evidence of resilience in the face of Brexit-based uncertainty and Covid-19 disruption this may keep a floor under the GBP/NZD exchange rate.
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