Concerns that the US-China trade war could continue for an extended period of time are not doing much to weaken the trade-correlated New Zealand Dollar this week, as the British Pound to New Zealand Dollar (GBP/NZD) exchange rate tumbles today on a combination of UK election uncertainties and a weaker US Dollar. The New Zealand Dollar has been supported lately by strong New Zealand data and central bank speculation.
After opening this week at the level of 2.0006, GBP/NZD spent most of the week trending with an upside bias and briefly touched on a half-month high of 2.0173 on Tuesday.
However, as election jitters pressure the Pound and the New Zealand Dollar jumps on US Dollar weakness, GBP/NZD has tumbled today and slipped below the week’s opening levels again.
Earlier today, the Pound saw a considerable bout of selling, causing GBP/NZD to briefly touch on a weekly low of 1.9922. At the time of writing, GBP/NZD trended closer to the level of 1.9989 again – just below the week’s opening levels.
GBP Exchange Rates Falter as Uncertainty Sets in During General Election
Markets have generally remained hopeful that Britain’s ruling Conservative Party will secure a solid majority in Britain’s 2019 General Election today.
Hopes for a Conservative majority and a relatively soft Brexit have been the primary cause of the Pound’s strong gains in recent weeks.
However, while the Pound has been able to sustain most of its recent gains, the latest UK polling and election uncertainty is causing some late volatility today.
Polls published in recent sessions showed the race was tightening in the run up to election day. Concerns that the election could still have an unexpected result, as well as general political uncertainty, led to Pound volatility today.
Analysts still predict a Conservative Party majority is the most likely outcome, but the Pound’s reaction could be poor if the win is weaker. According to Strategists from Credit Agricole SA:
‘Our base case is for the Tory Party to secure a comfortable, at least a 20-seat majority and the outcome should be sufficient to keep the pound supported over the long run,
If the Conservatives win fewer seats, there is a risk of a ‘sell-the-fact reaction’ that could see the pound a bit weaker in the immediate aftermath.’
NZD Exchange Rates Gain on Central Bank News and Speculation
The New Zealand Dollar has already been fairly resilient in recent weeks, amid signs of strength in New Zealand data and weaker bets of dovishness from the Reserve Bank of New Zealand.
As a result, this week’s US Dollar (USD) selloff has only further boosted the New Zealand Dollar.
On Wednesday evening, the Federal Reserve held its December policy decision. While the bank’s decision was unsurprising, leaving policy frozen, the bank’s outlook signals came as a surprise to investors.
Some investors had been hoping for signs that the bank could reserve some of the interest rate cuts made this year with hikes, but the bank instead heavily indicated that US monetary policy could be left frozen throughout 2020.
As the US Dollar (USD) is a safe haven currency popular in times of global uncertainty, the currency slumped on news that US interest rates could be calm in the coming year.
This also softened concerns of global monetary policy divergence. With the Reserve Bank of New Zealand (RBNZ) potentially avoiding further interest rate cuts, this news particularly benefitted the New Zealand Dollar.
Some of this week’s New Zealand data has been supportive as well, including retail card spending stats from November which beat forecasts.
GBP/NZD Exchange Rate Forecast: UK Election Outcome to Overshadow NZ Data
While some New Zealand data will be published tomorrow that could cause some New Zealand Dollar movement, the Pound to New Zealand Dollar exchange rate’s movement is likely to be dominated by UK election reaction towards the end of the week.
Britain’s 2019 General Election runs until 10pm tonight, after which votes will begin to be counted.
Analysts predict the Pound could react to results throughout the night as they come in. Signs that the Conservative Party could win a majority would lead to Pound gains, but signs of a closer race or even a hung Parliament could leave the Pound much weaker.
Depending on the results, tomorrow could see a sharp reaction from the Pound as investors digest the results.
Election reaction is likely to dominate GBP/NZD movement towards the end of the week and the way it impacts the Brexit process could continue to cause reaction into next week.
However, surprising New Zealand business data or consumer confidence due overnight, or any US-China trade developments, could also influence the Pound to New Zealand Dollar exchange rate.
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