A lack of market reasons to buy the New Zealand Dollar, as well as huge bets that the ‘Kiwi’ will fall against the US Dollar (USD), made it easier for the British Pound to New Zealand Dollar (GBP/NZD) exchange rate to advance on Monday. However, Sterling’s gains were limited as Brexit jitters remained.
Last week’s worsening in global trade jitters, as well as solid UK growth data, helped GBP/NZD to mount a solid advance and climb from 1.9200 to close the week at around 1.9516. This week so far, GBP/NZD has continued to edge higher. On Monday, GBP/NZD hit a high of 1.9554. This was the best GBP/NZD level in over a month – since the middle of May.
GBP Gains Limited as UK Manufacturing Report Shows Signs of Slowdown
While the Pound did edge higher versus the New Zealand Dollar on Monday, its gains were limited.
The primary reasons for the GBP/NZD gains were broad weakness in New Zealand Dollar trade, as well as the latest UK manufacturing PMI data.
The manufacturing PMI report beat forecasts of 54, and instead printed at 54.4. The previous figure was revised slightly lower though, from 54.4 to 54.3.
Despite the June figure beating forecasts, investors remained concerned about Britain’s economic outlook due to the cautious tone taken in Markit’s report.
Markit noted that UK businesses were increasingly gloomy in their economic outlooks, due to the uncertainties still surrounding Brexit.
According to Duncan Brock, Group Director from the Chartered Institute of Procurement & Supply:
‘A gentle hush descended over the sector in June as growth of new orders was amongst the lowest in 18 months and the almost imperceptible rise in manufacturing output was more about housekeeping and clearing up backlogs than tackling new business.
The undercurrent of uncertainty was once again the main culprit as clients hesitated to place orders resulting in the overall index average over the second quarter becoming the weakest since the end of 2016 and optimism falling to a seven-month low in June.’
It followed a week of mixed performance in Sterling. While UK growth beat expectations last week, UK businesses continued to ramp up concerns about the urgency of securing a good UK-EU trade deal post-Brexit.
The lack of major Brexit developments in recent months has been a major factor in Sterling weakness, with investors increasingly anxious that Britain could still see a ‘no deal’ Brexit.
NZD Sold as Investors Bet Against the Kiwi
The New Zealand Dollar struggled to avoid falling to its worst levels in over a month, amid a lack of market reasons to buy the currency.
Last week’s Reserve Bank of New Zealand (RBNZ) policy decision was perceived as dovish by investors, and the bank’s tone weighed on the New Zealand Dollar.
NZD trade has of course been pressured notably by US trade jitters too. The US government has continued to ramp up protectionist trade rhetoric against China, and ally nations like the EU too.
As the New Zealand Dollar is a risky commodity-correlated currency, it has been highly unappealing amid the persistent trade jitters.
GBP/NZD Forecast: UK Data and Trade Developments in Focus
The Pound to New Zealand Dollar exchange rate may have a better chance at advancing in the coming days, if major upcoming UK ecostats beat forecasts.
Wednesday will see the publication of Britain’s key June services PMI. As services make up a notable chunk of Britain’s economic activity, this data could give investors a better idea of how Britain’s economy performed last month.
If the data beats forecasts and the outlook is solid too, Bank of England (BoE) interest rate hike bets will likely rise and Sterling will see stronger demand.
Also worthy of note will be the latest Global Dairy Trade (GDT) auction on Tuesday. If prices of dairy, New Zealand’s most lucrative commodity, beat expectations, the ‘Kiwi’ could see stronger support.
Of course, the New Zealand Dollar is more likely to strengthen if US trade jitters soften at all in the coming days.
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