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Pound New Zealand Dollar Exchange Rate Gains amid Gloomy Market Mood

November 9, 2021 - Written by John Cameron


GBP/NZD Firms on UK Sales and Risk-Off Mood

The Pound New Zealand Dollar (GBP/NZD) exchange rate has edged higher today thanks to some promising data from the British Retail Consortium (BRC).

Meanwhile, the ‘Kiwi’ finds itself under pressure amid a risk-off market mood.

Pound (GBP) Gains on UK Retail Sales

The Pound (GBP) has managed to gain ground against the New Zealand Dollar (NZD) today following a BRC report showing that UK retail sales recovered in October.

Last month’s sales grew by 1.3% compared to October 2020 and by 6.3% compared to October 2019. With prices forecast to continue increasing and concerns that there may be shortages on the shelves during the holiday season, consumers started their Christmas shopping early this year.

The figures suggest a recovery from September’s sales, when the Office for National Statistics recorded a fifth consecutive month of contracting retail sales volumes.

Data from Barclaycard also indicated higher sales. Credit card spending in October of this year was 14.2% higher than in the same month last year. Digital entertainment and subscription services showed particularly strong growth, as did travel, as restrictions on international journeys were relaxed.

However, Sterling’s gains have been capped by ongoing Brexit concerns. The dispute between the UK and the EU over the Northern Ireland protocol looks unlikely to be resolved any time soon. With political tensions bubbling over in Northern Ireland, the UK government may decide to trigger Article 16 to suspend certain parts of the protocol.

The EU has said that it will take proportionate action, stoking fears that the EU-UK trade deal may collapse if London uses Article 16 to completely strip away the protocol.

New Zealand Dollar (NZD) Dented by Risk-Off Mood

Meanwhile, the New Zealand Dollar (NZD) has lost ground today as a bearish market mood drains the appeal of the risk-sensitive ‘Kiwi’.

This comes as investors digest a warning from the Federal Reserve in its latest financial stability report. The Fed warned markets that, while riskier assets continue to rise in price, a large turnaround in market sentiment could cause ‘significant declines’:

’Asset prices remain vulnerable to significant declines should investor risk sentiment deteriorate, progress on containing the virus disappoint, or the economic recovery stall.

The Fed also outlined the contagion risks of China’s real estate sector, arguing that stresses could reverberate through the global economy:

’Stresses could, in turn, propagate to the Chinese financial system through spillovers to financial firms, a sudden correction of real estate prices, or a reduction in investor risk appetite. Given the size of China’s economy and financial system as well as its extensive trade linkages with the rest of the world, financial stresses in China could strain global financial markets through a deterioration of risk sentiment, pose risks to global economic growth, and affect the United States.’

These warnings seem to have weighed on the market mood today, thereby denting the perceived riskier New Zealand Dollar. European equity markets have fallen sharply this afternoon, while the US stock market has opened cautiously.

The commodity-linked ‘Kiwi’ may also be under pressure amid a fall in the prices of some materials, particularly agricultural produce, which are among New Zealand’s key exports.

GBP/NZD Exchange Rate Forecast: Pound’s Gains Capped by Brexit?

With no notable data coming up for New Zealand, risk appetite could be the primary driver for NZD exchange rates.

As for the Pound, the ongoing Brexit concerns could keep a lid on any meaningful gains. GBP investors will be nervously eyeing domestic headlines to see whether the UK and EU can resolve their disagreements over the Northern Ireland protocol.

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