Pound New Zealand Dollar (GBP/NZD) Exchange Rate Loses Ground Ahead of NZ Inflation Figures

January 23, 2020 – Written by Frank Davies

Temporary Easing in Market Risk Aversion Knocks Pound New Zealand Dollar (GBP/NZD) Exchange Rate

A general resurgence in market risk appetite saw the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate knocked off its bullish trend on Thursday.

While market anxiety over the spread of the coronavirus from China remained this was not enough to keep the New Zealand Dollar from recovering ground.

As France gave in to US pressure to drop its promised digital tax the risk of a further escalation in global trade tensions appeared to ease, to the benefit of NZD exchange rates.

With investors expecting to see an uptick in the fourth quarter New Zealand consumer price index during Friday’s Asian session the appeal of the New Zealand Dollar picked up further.

Stronger NZ Inflation Rate Set to Shore up New Zealand Dollar Demand

If the headline inflation rate strengthens from 1.5% to 1.8% as forecast this could encourage NZD exchange rates to push higher across the board.

Such an uptick in inflationary pressure would give the Reserve Bank of New Zealand (RBNZ) less cause for dovishness, limiting the odds of a 2020 interest rate cut.

Even so, with the quarterly inflation rate forecast to show a modest slowdown from 0.7% to 0.4% the New Zealand Dollar could still come under some pressure.

Evidence that price pressures may struggle to sustain themselves in the coming months could leave the door open for a dovish RBNZ outlook.

GBP Exchange Rates Vulnerable to Underwhelming UK Manufacturing and Services PMIs

Support for the Pound, meanwhile, may weaken ahead of the weekend unless January’s manufacturing and services PMIs impress.

With the manufacturing sector expected to remain in a state of contraction this could cast a fresh shadow over the outlook of the UK economy.

However, a greater degree of focus will fall on the accompanying services PMI, given that the sector remains the UK’s primary growth engine.

As long as the service sector can recover from the stagnation seen in December and deliver a month of positive growth the GBP/NZD exchange rate looks set to return to a stronger footing.

Global Trade Jitters Set to Limit New Zealand Dollar Upside

With fresh New Zealand data thin on the ground in the coming days any deterioration in global risk appetite could weigh heavily on NZD exchange rates.

Any fresh US threats on the issue of trade could see the New Zealand Dollar fall sharply out of favour once again.

Until markets see signs of progress towards a phase two US-China trade agreement a sense of caution looks set to keep risk-sensitive currencies under a degree of pressure.

Speculation ahead of the next Federal Reserve policy decision could also provoke volatility for the New Zealand Dollar as markets weigh up the odds of potential monetary loosening.

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TAGS: Pound New Zealand Dollar Forecasts