- Stronger UK Services PMI rallied GBP/NZD exchange rate – Pound encouraged by signs of economic growth
- Poor US payrolls report shored up New Zealand Dollar – Risk appetite increased by lower odds of Fed rate hike
- Pound slumped on increased support for ‘Brexit’ – Opinion polls pointed towards ‘Leave’ campaign lead
- GBP/NZD exchange rate forecast to rally if RBNZ cuts interest rates – Dovish policy meeting could erode ‘Kiwi’ support
Pound (GBP) Exchange Rate Boosted by Stronger BRC Sales Data
Confidence in the Pound (GBP) recovered somewhat on Tuesday morning after the BRC Like-for-Like Sales figure for May bettered expectations. Despite persistent concerns over the EU referendum this allowed the Pound Sterling to New Zealand (GBP/NZD) exchange rate to trend higher in the region of 2.0927.
(Previously updated at 14:51 on 06/06/2016)
Decreased Odds of Imminent Fed Rate Move Boosted ‘Kiwi’ (NZD)
Some measure of confidence returned to the Pound (GBP) ahead of the weekend on the back of the May UK Services PMI. Growth in the service sector strengthened from 52.3 to 53.5, a bullish result which seemed to indicate greater underlying robustness in the domestic economy. As the majority of the UK’s economic activity is accounted for by the service industry this stronger showing prompted investors to pile back into the Pound, in spite of persistent referendum concerns.
However, the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate was unable to hold onto its resultant gains for long. While market risk appetite had been muted by worries over the increasingly hawkish tone coming from members of the Federal Open Market Committee (FOMC) the odds of a June interest rate hike declined sharply on Friday. This was in response to the latest Non-Farm Payrolls report, which revealed that only 38,000 jobs had been added to the US economy in May as opposed to the 160,000 anticipated.
The appeal of commodity-correlated currencies such as the ‘Kiwi’ (NZD) benefitted strongly from this disappointing US data, with demand for the antipodean currency also shored up by a stronger ANZ Commodity Price Index. Altogether this raised hopes that the Reserve Bank of New Zealand (RBNZ) would remain on hold for the time being, a prospect that did nothing to boost the GBP/NZD exchange rate.
Discouraging ‘Brexit’ Polls Pushed GBP/NZD Exchange Rate to 7-Week Low
There was no fresh New Zealand data released on Monday thanks to the country’s observance of a bank holiday. Consequently sentiment towards the New Zealand Dollar was driven by wider market trends, weakening as the US Dollar (USD) regained some ground. With safe-haven demand on the rise once again ahead of comments from Fed Chair Janet Yellen the ‘Kiwi’ struggled to maintain its gains against the Pound.
Confidence in Sterling was sharply dented, meanwhile, following the latest raft of referendum opinion polls. Investors were discouraged to find that support for the ‘Leave’ campaign had continued to grow over the last week, prompting some pronounced Pound volatility as markets moved to better price in the possibility of a ‘Brexit’. As Lee Hardman, currency analyst at MUFG, noted:
‘Still the online poll results have added to building evidence that the leave campaign has recently gained some momentum. The sharp weakening of the pound highlights that it will remain highly sensitive and volatile to perceived Brexit risk in the coming weeks ahead of the referendum.’
With the mood towards the Pound consequently taking a decided downturn at the start of the week this saw the GBP/NZD currency pair fall to a seven-week low of 2.0705, despite heightened risk aversion.
GBP/NZD Exchange Rate Forecast: RBNZ Rate Cut Could Weaken New Zealand Dollar
Should the latest telephone opinion polls offer further evidence of this apparent shift in support towards the ‘Leave’ campaign the Pound could return to a more bullish footing as the week progresses. However, if the odds move increasingly in the direction of a ‘Brexit’ the appeal of the Pound is expected to weaken markedly.
Demand for the ‘Kiwi’ is likely to soften ahead of Wednesday’s RNBZ policy meeting, with investors taking positions ahead of the latest interest rate announcement. There is speculation that the central bank will opt to cut interest rates at this juncture, as researchers at BBH note:
‘Disappointing economic data, soft milk prices, and a rebounding currency make us inclined to anticipate a cut that would bring the cash rate to 1.75%. Unlike the RBA that cut rates last month, the RBNZ has not reduced rates since January. If it does not move now, many participants may consider doubling up for a move in August when it meets again.’
Should the RBNZ choose to leave interest rates on hold for another session the GBP/NZD exchange rate would likely see fresh weakness, with confidence in the New Zealand Dollar boosted. Any lack of dovishness from policymakers is expected to encourage demand for the antipodean currency, particularly as the odds of Fed action remain limited.
Current GBP, NZD Exchange Rates
At the time of writing, the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate was slumped around 2.0784, while the New Zealand Dollar to Pound Sterling (NZD/GBP) pairing was making gains in the region of 0.4810.
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