Trade is a vital driver of GBP NZD long term exchange rate forecasts for 2017. The Pound will be affected by indications of the kind of post-Brexit deal the UK will agree with the EU, while the New Zealand Dollar could be supported by an improved dairy price outlook.
GBP NZD Long Term Exchange Rate Forecasts Volatile as Brexit Negotiations Commence
The second half of the year was a volatile one for the Pound, with a downside bias as Sterling was buffeted by the fallout from the EU independence referendum. After the initial post-vote drop of over -16%, GBP NZD fell even further on persistent market uncertainty, ending the year -21% down on 2016 opening levels.
Much of the depreciation has been caused by speculation over the shape of UK trade relations outside of the European Union. Much of the Pound uncertainty has been caused by fears that the UK government intends to take the country out of the single market.
The government is expected to trigger Article 50 and formally begin the process of withdrawing from the European Union at the end of the first quarter of 2017.
Dairy Sector Volatility to Remain Key Influencer of New Zealand Dollar Forecasts
The New Zealand Dollar remains extremely sensitive to fluctuations in the price of dairy – New Zealand’s largest export. Despite the volatility, dairy prices hit their highest level since mid-June 2014 at the beginning of December last year, although they eased back slightly at the start of 2017.
Currently, the global market remains oversupplied, but production is falling. As Rabobank Senior Dairy Analyst Michael Harvey notes;
‘In Europe, farmers have cut production in response to low milk prices, however poor weather conditions have exacerbated the tightening of supply. And we could see production fall further, depending on the uptake by European farmers to government subsidies, which could theoretically remove around one billion litres from the market.’
GBP NZD Long Term Exchange Rate Forecast; Downside Bias as Brexit Negotiations Soften Pound?
Trade will be a key issue for GBP NZD long term exchange rate forecasts. With the UK spending the majority of the year in negotiations with the EU, the Pound promises to become a volatile currency as investors react to speculation, hearsay and government comment. The latter may not be very forthcoming at all, given Theresa May’s approach to the negotiations, which have left officials, investors and citizens on both sides of the Channel confused and furious in equal measure.
Meanwhile, an improved outlook for dairy prices bodes well for the New Zealand Dollar over the coming year. Growth may be muted, but after battling against weakening prices – and saddled with bad debts – the New Zealand dairy sector is likely to see a welcome boost from rising export revenues.
Rabobank explains;
‘While Rabobank sees the price recovery being sustained into 2017, there are headwinds for further price increases. And as a result, Rabobank views the current upside for whole milk powder to be around USD 3,400 per tonne.’
Overall, the Brexit negotiations are likely to weigh on the Pound, while the New Zealand Dollar advance could gain momentum over the coming year if dairy demand strengthens. This would seem to suggest a downside risk for GBP NZD long term exchange rate forecasts.
GBP NZD Long Term Exchange Rate Forecasts; Current Interbank Rates
At the time of writing, the Pound New Zealand Dollar exchange rate was trending in the region of 1.7143, while the New Zealand Dollar Pound exchange rate was trading around 0.5831.
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