March 23, 2021 – Written by John Cameron
GBP/NZD Exchange Rate Rises as Tensions Between China and the West Dampen Risk Appetite
The Pound to New Zealand Dollar (GBP/NZD) exchange rate rose by 0.6% today as tensions between China – New Zealand’s largest trading partner – and the West have escalated over violations of human rights in Xinjiang. The pairing is currently fluctuating around NZ$ 1.95.
US secretary of state, Antony Blinken explained the situation:
‘Amid growing international condemnation, [China] continues to commit genocide and crimes against humanity in Xinjiang. We will continue to stand with our allies around the world in calling for an immediate end to the PRC’s crimes and for justice for the many victims.’
As a result, NZD investors are becoming more concerned that growing tensions between many key Western nations and China could have negative consequences for New Zealand’s economy, which relies heavily on its trade with the world’s second-largest economy.
In New Zealand’s economic news, today will see the release of the latest Trade Balance report for February.
Any improvement in New Zealand’s exports could drive-up the NZD/GBP exchange rate, however, as the outlook for the nation’s economy steadily improves.
Pound (GBP) Exchange Rate Edges Higher on Encouraging UK Unemployment Data
The Pound (GBP) rose against the ‘Kiwi’ today after it was revealed that UK joblessness had fallen for the first time since the beginning of the coronavirus pandemic last year.
The latest ILO Unemployment Rate report for January came in below forecasts, with the figure down from the previous 5.1% to 5%.
Suren Thiru, the head of economics at the British Chambers of Commerce, commented on the data:
‘Extending furlough will limit the peak in job losses. However, with many firms struggling with the damage done to their cashflow by a year of Covid restrictions, unemployment is likely to remain on an upward trajectory until well beyond a full reopening of the economy.’
UK markets are also becoming more confident in the UK’s Covid-19 vaccine rollout with daily deaths now at 17, down by -47 against the previous week.
Daily cases of Covid-19 in the UK have, however, stabilised, with cases currently at 5,342, up by 253 compared to last week.
As a result, GBP investors are becoming more cautious following this week’s tensions between the UK and the EU.
The EU has threatened to hold back AstraZeneca exports to the UK, but Prime Minister Boris Johnson continues to seek a compromise with the bloc.
GBP/NZD Forecast: UK Services PMI in Focus
Pound (GBP) traders are awaiting tomorrow’s release of the flash Markit Services PMI for March.
Any improvement in the UK’s largest sector would further boost the GBP/NZD exchange rate.
Tomorrow will also see the latest UK Consumer Price Index figure for February. If this points to a marked improvement in the UK’s economic outlook, then Sterling would head higher.
New Zealand Dollar (NZD) traders will be monitoring developments between the West and China.
Any further signs of escalating divides between the world’s second-largest economy and Western countries would further weigh on confident in risky assets such as the ‘Kiwi’.
The Pound New Zealand Dollar (GBP/NZD) exchange rate could continue to head higher this week, however, as the outlook for the UK’s economy continues to improve as the nation’s coronavirus infection rates fall.
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