Despite broad uncertainties about the Brexit process, risk-aversion ultimately got to the New Zealand Dollar again last week and the British Pound to New Zealand Dollar (GBP/NZD) exchange rate advanced. On Monday, the New Zealand Dollar saw mixed trade as investors anticipated major New Zealand inflation data.
After opening last week at the level of 1.9435, GBP/NZD briefly slumped to a July low of 1.9323 before spending the remainder of the week climbing. In the end, GBP/NZD closed the week near a weekly high of 1.9587 and despite a brief dip on Monday morning was trending in this region at the time of writing.
GBP Strength Limited as Brexit Uncertainties Continue to Hit Headlines
Despite some decent UK data last week, Pound movement was largely driven by Brexit news amid some surprising UK political developments throughout the week.
At the beginning, investors were distracted by signs of climbing UK growth by news that high-ranking officials including David Davis and Boris Johnson had resigned from the UK government.
The hard Brexit advocates resigned from their positions in protest of UK Prime Minister Theresa May’s Brexit plan.
The plan, revealed in a detailed white paper last week, looks to maintain some strong ties to the Eurozone in order to resolve the issue of the Irish border, as well as offer some reassurances to businesses who attract skills workers.
These resignations were met with mixed reactions, including hopes for a softer Brexit but also fears that hard Brexit supporting Conservative backbenchers could mount a leadership challenge against Prime Minister May.
On top of this, US President Donald Trump criticised the white paper during his visit to the UK last week, and indicated that it threatened the likelihood of a UK-US trade deal being fast tracked post-Brexit.
Further Brexit news continued to put pressure on the Pound when markets opened this week, as a former minister who resigned in January made a call for there to be some kind of referendum on what kind of Brexit should happen.
Writing in the Times newspaper, Justine Greening, who was UK Education Secretary until January, said:
‘We’ll be dragging Remain voters out of the EU for a deal that means still complying with many EU rules, but now with no say on shaping them,
It’s not what they want, and on top of that when they hear that Leave voters are unhappy, they ask, ‘What’s the point?’. For Leavers, this deal simply does not deliver the proper break from the European Union that they wanted.’
NZD Demand Limited on Signs of Chinese Economic Slowdown
Investors had little reason to buy the New Zealand Dollar last week, so it was unable to sustain much of a recovery attempt.
The New Zealand Dollar has hit major lows in recent weeks, as US-China trade jitters weigh heavily and there is little in the way of domestic support. Recent New Zealand data has been mixed.
While investors briefly bought the currency from its lows, the latest trade developments kept pressure on NZD and limited its gains.
On top of this, Monday saw the publication of China’s latest Gross Domestic Product (GDP) growth results. Chinese growth did beat forecasts quarter-on-quarter, but the yearly result slowed as analysts feared.
The news caused concerns China’s growth would continue to slow amid the US-China trade war, which dampened demand for the New Zealand Dollar due to New Zealand’s reliance on Chinese trade.
According to a note from ANZ economists:
‘The NZD continues to struggle with the patchy domestic scene and global trade uncertainties taking their toll,
Tomorrow’s local CPI (consumer price index) figures will be key to determine whether that will continue in the near-term.’
GBP/NZD Forecast: New Zealand and UK Inflation Results in Focus
Inflation is likely to take focus in Pound to New Zealand Dollar exchange rate movement over the coming sessions, but Brexit and trade war developments are also highly likely to influence GBP/NZD too.
New Zealand’s anticipated Q2 Consumer Price Index (CPI) report will be published during Tuesday’s Asian session and is expected to have remained steady quarter-on-quarter. Yearly inflation is forecast to have risen from 1.1% to 1.6%.
If New Zealand inflation beats forecasts, investors may become more hopeful for the Reserve Bank of New Zealand (RBNZ) to take a more hawkish tone in the foreseeable future.
This could bolster the New Zealand Dollar amid US-China trade war jitters.
Britain’s May job market report will be published on Tuesday, and includes Britain’s latest wage growth results. If UK wages impress, Bank of England (BoE) interest rate hike bets will remain solid.
However, if UK wages or Wednesday’s UK inflation rate figures disappoint, investors will become concerned about UK price pressures and BoE rate hike bets could tumble. This would likely drag the Pound to New Zealand Dollar exchange rate lower.
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