- Encouraging UK employment data shored up Pound – Investors optimistic after unemployment rate dipped
- New Zealand Dollar trended higher ahead of Fed meeting – Dovishness of policymakers ultimately prompted rush to safe-haven assets
- New Zealand GDP bettered forecast – GBP/NZD exchange rate softened by robust economic growth
- BoE meeting minutes forecast to trigger Pound movement – ‘Brexit’ warnings could be seen to increase ‘Remain’ campaign support
Risk appetite weakened on Thursday in spite of the Fed opting not to raise interest rates at its June policy meeting, allowing the Pound (GBP) to make gains against the New Zealand Dollar (NZD).
Better-than-Expected UK Unemployment Rate and Wage Growth Boosted Pound (GBP)
After seeing a sharp slump on the back of worrying EU referendum opinion polls the Pound (GBP) benefitted from consolidation trading on Wednesday. Investors were also encouraged to buy back into the softened currency after the latest raft of UK employment data proved unexpectedly bullish. The ILO Unemployment Rate showed a surprise dip from 5.1% to 5.0% in the three months to April, while growth in average weekly earnings held steady at 2.0%. Altogether this seemed to point towards a more robust jobs market, easing fears that referendum uncertainty has been having a substantially detrimental impact on domestic economic conditions.
Demand for the New Zealand Dollar (NZD), however, remained relatively strong in spite of slowing shown by the REINZ House Sales figure. Although growth in the housing market weakened in May this failed to keep the Pound to New Zealand Dollar (GBP/NZD) exchange rate on a stronger trend. As ‘Brexit’-based fears eased somewhat in the absence of further opinion polls the ‘Kiwi’ was buoyed against rivals. The antipodean currency’s appeal was further enhanced by weakness in the US Dollar (USD) ahead of the latest Federal Open Market Committee (FOMC) policy meeting. With policymakers expected to leave interest rates unchanged at this juncture, due to a poor Non-Farm Payrolls report, demand for higher-yielding assets naturally rose.
Bullish New Zealand GDP Data Failed to Shore up New Zealand Dollar (NZD)
Confidence in the ‘Kiwi’ was not particularly shored up by the latest GlobalDairyTrade auction, however, which saw a minimal change in prices from the last session. This disappointing result somewhat undermined the appeal of the commodity-correlated New Zealand Dollar, indicating that upwards momentum in the sector remains muted.
Although the Fed opted to make no change to interest rates at this juncture any bullish response from the ‘Kiwi’ was overshadowed by the unexpectedly dovish tone of the FOMC. Markets reacted poorly to the Fed’s decision to lower its growth forecast for the US economy, taking a more dovish tone than investors had anticipated. As a result of this, and the lack of action from the Bank of Japan (BoJ), appetite for safe-haven assets rose sharply, denting the sensitive New Zealand Dollar.
The ensuing bullishness of the GBP/NZD exchange rate was temporarily muted, however, by the first quarter New Zealand GDP report. In a positive upside surprise the economy grew by 2.8% on the year, as opposed to the 2.6% that had been forecast. This strong showing prompted optimism in the outlook of the domestic economy and seemed to reduce the odds of an imminent interest rate cut from the Reserve Bank of New Zealand (RBNZ). As analysts with ANZ noted:
‘[The] result was a little above the RBNZ’s June MPS pick (0.6% q/q) and so at the margin should reduce the odds of an August rate cut. However, the upcoming CPI and labour market data should carry far more weight in that regard. The odds still favour an August cut (on currency strength and global wobbles alone), but it is not a conviction view.’
GBP/NZD Exchange Rate Forecast: BoE Meeting Minutes Predicted to Trigger Pound Volatility
Greater volatility is expected for the Pound in response to today’s Bank of England (BoE) policy meeting, even though the Monetary Policy Committee (MPC) is not likely to make any change to interest rates. Ahead of next week’s referendum any new intervention from the BoE could encourage greater confidence in Sterling, given the weight that is afforded to Governor Mark Carney’s opinion amongst voters. Nevertheless, ‘Brexit’ fears are likely to remain a significant downside pressure on the Pound, particularly following another poll putting ‘Leave’ out in front.
Tonight’s New Zealand Manufacturing PMI could soften demand for the ‘Kiwi’ further if the measure indicates any economic slowness. Investors anticipate a modest decline in manufacturing sector growth, which could see the GBP/NZD exchange rate making some fresh gains ahead of the weekend.
Current GBP, NZD Exchange Rates
At the time of writing, the Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate was making gains in the region of 2.0109, while the New Zealand Dollar to Pound Sterling (NZD/GBP) pairing was slumped around 0.4971.
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