Uncertain Economic Impact of Covid-19 Leaves Pound New Zealand Dollar (GBP/NZD) Exchange Rate Flat

February 14, 2020 – Written by John Cameron

Pound Sterling New Zealand Dollar (GBP/NZD) Exchange Rate Muted as Markets Shrug Off RBNZ Decision

The Pound Sterling New Zealand Dollar (GBP/NZD) exchange rate remained flat on Friday, and traded around NZ$ 2.0233.

The New Zealand Dollar weakened at the end of the week on continued Covid-19 fears.

The latest figures from China revealed the number of cases increased by 4,823, after Thursday’s jump of nearly 15,000 new reported infections.

The dramatic increase in the number of cases reported has caused many to doubt China’s figures, and commenting on this Hamish Pepper, fixed income and currency strategist at Harbour Asset Management noted:

‘The bias is probably for a weaker currency in light of global concerns. It’s hard to see that changing meaningfully until we get more certainty on the economic impact. That’s what the market is really searching for.’

Markets shrugged off the positive impact of this week’s Reserve Bank of New Zealand (RBNZ) monetary policy statement, focusing on the coronavirus outbreak.

New Zealand’s business PMI showed growth in the sector contracted, as the figure posted at 49.6. This was the second month in contraction, and according to BNZ:

‘In the context of the latest global ructions – this time related to the COVID-19 virus – January’s PMI could arguably be read as a relatively decent outcome. At the same time, it is surely too early for the PMI to capture the economic consequences of the virus. What we do know is that only two respondents to January’s survey specifically mentioned the ‘coronavirus’ as a negative influence on their business.’

Sterling (GBP) Muted After Shock Resignation of UK Chancellor

During Thursday’s session, Prime Minister Boris Johnson forced the resignation of Chancellor Sajid Javid after he refused to sack his advisors.

The unexpected resignation meant Johnson-loyalist, Rishi Sunak was appointed as the new Chancellor, which buoyed GBP.

Markets expect that Johnson will now have tighter control over the Treasury, paving the way for a boost in public spending.

Commenting on this, UniCredit analysts wrote in a note:

‘Sterling may continue to hold the line against the Dollar at close to $ 1.30 and stay firm against the weaker euro after the UK government reshuffle, which may lead to greater fiscal stimulus in next month’s budget.’

Meanwhile, GBP received a further boost after the outgoing Bank of England (BoE) Governor, Mark Carney said the country was moving to address weak productivity.

Pound New Zealand Dollar Outlook: NZ Visitor Arrivals in Focus

Looking ahead, the New Zealand Dollar (NZD) could edge up against the Pound (GBP) following the release of December’s visitor arrivals data.

If annual visitors to New Zealand rises higher than expected, the ‘Kiwi’ will edge higher.

However, upbeat data will likely be offset by a fall in risk appetite as traders continue to focus on Covid-19.

If the number of Covid-19 cases continues to rise at a similar pace seen over the last two days, risk appetite will slide, and the Pound New Zealand Dollar (GBP/NZD) exchange rate will edge higher.

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TAGS: Pound New Zealand Dollar Forecasts