Pound New Zealand Dollar (GBP/NZD) Exchange Rate Falls despite Strong UK Services PMI

February 5, 2020 – Written by John Cameron

Pound New Zealand Dollar (GBP/NZD) Exchange Rate Slips despite UK Services Growth

The Pound New Zealand Dollar (GBP/NZD) exchange rate remained flat, leaving the pairing trading at around NZ$ 2.0053.

Sterling received some support earlier this morning after the country’s service sector PMI rebounded in January.

However, the GBP/NZD exchange rate slumped later in the afternoon.

The UK general election in December provided the sector with support as previous headwinds from delayed decision making were eliminated.

This saw the services PMI rise to 53.9, the highest level since September 2018 and the first time in five months the sector has posted growth.

Commenting on this, Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply said:

‘The UK service sector leapt into action in the New Year with a welcome return to stronger business activity and an optimism not seen for almost five years. New work flowed in at a surprisingly sharp rate as businesses started to invest and previously uncertain consumers parted with their cash. Orders held back by political uncertainty were uncorked at the fastest rate for around a year and a half.

‘All in all a positive start last month, and if political stability is maintained throughout the year with political promises becoming reality, then 2020 could become a stellar year for service companies.’

Strong Wage Growth Supports New Zealand Dollar (NZD)

Meanwhile, the New Zealand Dollar (NZD) received an upswing of support following the release of labour market data. This buoyed the currency this afternoon.

The New Zealand unemployment rate fell back to 4% in the final quarter of December, down from 4.1% in Q3.

Commenting on the data, Stats NZ labour market and household senior manager Sean Broughton noted:

‘The unemployment rate in New Zealand has largely been tracking down since late 2012, but has remained stable at around 4.0% throughout 2019.’

Further statistics showed that wages in the country increased by 2.6% in the year to December quarter. This offered the ‘Kiwi’ some support as this was the largest increase since Q2 2009.

NZD Flat as Investors ‘Hungry for Risk’

The risk-sensitive New Zealand Dollar (NZD) received support on Wednesday after reports of medical breakthroughs in the fight against the Wuhan coronavirus.

Reports stated that a Chinese university had found a drug that could treat people while researchers in the UK had made a ‘significant breakthrough’ in the search for a vaccine.

Commenting on the reports of a breakthrough, head of G10 FX Strategy at Credit Agricole, Valentin Marinov noted:

‘The fact that the risk assets are so supported today may indicate that investors are hungry for risk.’

However, positive UK services data buoyed Sterling this morning but the pairing slipped this afternoon.

Pound New Zealand Dollar Outlook: Will Risk Appetite Increase?

Looking ahead, the New Zealand (NZD) could edge up against the Pound (GBP) if there is further optimism from markets about the spread of the Wuhan coronavirus is slowing.

If investors remain upbeat about the spread of the virus slowing, the risk-sensitive ‘Kiwi’ is likely to rise.

Meanwhile, Sterling could slide against NZD if traders continue to worry about the UK’s stance against the EU during discussions.

If traders price in a higher chance of the UK being unable to reach an agreement with the EU before the end of the transition period, the Pound New Zealand Dollar (GBP/NZD) exchange rate will slide.

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TAGS: Pound New Zealand Dollar Forecasts