Pound New Zealand Dollar (GBP/NZD) Exchange Rate Levels on Upwardly Revised UK PMI

November 3, 2021 - Written by John Cameron

STORY LINK Pound New Zealand Dollar (GBP/NZD) Exchange Rate Levels on Upwardly Revised UK PMI

GBP/NZD Exchange Rate Levels on NZ data, UK Services Boom

The Pound (GBP) has rebounded to trade level against the New Zealand Dollar (NZD) this morning, as the Pound New Zealand Dollar (GBP/NZD) exchange rate reflects both positive NZ employment data and an uptick in UK service-sector activity.

At the time of writing, GBP/NZD is trading at NZ$1.9114, little changed from today’s opening levels.

New Zealand Dollar (NZD) Firms on Employment, Chinese PMI

The New Zealand Dollar is up against its peers today as yesterday’s upbeat employment data continues to lend support to the currency.

New Zealand's unemployment rate decreased to an all-time low of 3.4% in the third quarter of 2021: the number of unemployed people fell by 18K to 98K. This marked the lowest level of unemployment in almost 14 years.

Meanwhile, employment change went up by 54K, increasing by 2% in Q3- the largest gain in five years. The rate of people in employment rose to 68.8% from 67.6% last quarter, marking the fourth straight quarter of employment growth.

Average weekly earnings for full-time employees also increased to $1,367 in an attempt to recruit more domestic workers: New Zealand’s closed border cuts the supply of imported labour.

Following the labour data, investors now see a 40% chance that the Reserve Bank will deliver a 50 basis-point rate hike at its next meeting on 24 Nov. According to Ben Udy at Capital Economics, the labour market report ‘should encourage the RBNZ to hike rates more aggressively.’

Another factor lending support to the currency is a rise in the Chinese Caixin services PMI. Service-sector activity increased by an unexpected 53.8 points in October, as opposed to the 53 points expected, rising to the highest levels since July.

Pound (GBP) Finds Support on Upwardly Revised PMI

The finalised Markit/CIPS UK Services PMI for October was unexpectedly revised up this morning, from 58 to 59.1. The latest reading signalled the strongest pace of recovery since July, although still softer than the peak seen in May.

Reopening of the economy and looser international travel restrictions helped to boost demand: new export sales rose at the fastest pace in just over 3 years, while new work growth was the fastest since June 2018 and the pace of job creation was the strongest since June 2014.

Demand was ‘exceptionally strong’ in hospitality, leisure and transportation, following the relaxation of pandemic restrictions, leading firms juggling shortages of staff and stretched supply chains to keep up.

Costs and prices subsequently rose at the fastest rates since the survey began in July 1996.

Staff turnover reached unusually high levels, as many companies hiked wages to attract new workers: some bosses said it was extremely hard to find candidates, despite efforts to boost starting salaries and conditions.

According to Tim Moore, economics director at IHS Markit:

‘Many consumer service providers commented on unfilled vacancies after staff departures for higher wages’;

‘Comments from survey respondents cited worries about prolonged staff shortages and constraints on growth due to the supply chain crisis.’

Experts imagine that rising costs as a result of higher wages ‘may bolster those MPC members on the verge of voting for higher interest rates in November’s meeting.’

However, Martin Beck, senior economic advisor to the EY ITEM Club, maintains that tomorrow’s decision still looks to be on a knife edge.

GBP/NZD Exchange Rate Forecast: BoE Rate Decision to Inspire Movement?

Looking ahead, tomorrow’s interest rate decision from the Bank of England (BoE) is likely to influence the Pound New Zealand Dollar exchange rate.

Depending upon whether the central bank decide to raise interest rates or leave them for the time being, investors are likely to take bullish or bearish action. A hawkish tone from BoE policymakers may also inspire Sterling tailwinds.

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