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GBP NZD Exchange Rate Outlook Hinges on Brexit Negotiation Progress

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The outlook for the GBP NZD exchange rate remains heavily dependent on potential progress made in the Brexit negotiation process this week and next, with markets anxious that the EU’s two-week deadline for December trade talks is quickly ticking away.

The Big Picture for Brexit and GBP Exchange Rates

Last week marked the end of the sixth round of Brexit talks, a rather brief round with, once again, very little tangible progress revealed at the end.

UK Brexit Secretary David Davis has asked for the EU to have more imagination and flexibility in an attempt to push Brussels towards negotiating aspects of trade without revealing how much the UK is prepared to pay (as this is arguably one of the UK’s largest negotiating chips).

The EU, on the other hand, has remained resolute, issuing a warning that Britain has two weeks to provide ‘clarification’ regarding its financial commitments to the EU in the form of said divorce bill or trade talks will not be able to take place in December.

This news caused market volatility, with some investors concerned that the UK will not make concessions before the deadline and thus trade talks will not begin for an extended length of time, and others hopeful that the deadline will break the deadlock and move things along.

Beyond this, the outlook for the Pound has been influenced by news that Davis has insisted a vote is required to cement exactly how the UK will exit from the European Union on Brexit Day 2019 – whether it’s an acceptance of any proposed deal, a rejection, or the option to exit with no deal in place.

Davis stated:

‘It is clear that we need to take further steps to provide clarity and certainty both in the negotiations and at home regarding the implementation of any agreement into United Kingdom law’.

This news and the ongoing debate surrounding it has left the UK’s political sphere in tumult, with news that some 40 Conservative MP’s have claimed that they would be willing to sign a vote of no confidence in UK Prime Minister Theresa May also resulting in a great deal of uncertainty for the Pound.

NZD Exchange Rate Outlook Limited by Dovish RBNZ

The outlook for the ‘Kiwi’ Dollar on the other hand also remains limited, with the latest dovish Reserve Bank of New Zealand (RBNZ) rate decision encumbering the New Zealand Dollar.

Whilst the RBNZ did assert that the change in leadership would not affect monetary policy moving ahead, central issues such as subdued inflation and a cooling housing market continue to push the bank towards remaining cautious.

There was some optimism, however, with the bank’s Governor Grant Spencer pointing to New Zealand’s strong GDP growth and employment figures.

Spencer stated:

‘Employment growth has been strong and GDP growth is projected to strengthen with a weaker outlook for housing and construction offset by accommodative monetary policy, the continued high terms of trade and increased fiscal stimuli’

Beyond this, however, the Labour led coalition leadership could be liable to cause some instability, especially as new policies are introduced.

Whilst the bank has asserted that changes to its mandate will not affect monetary policy, there remains the concern amongst investors that the new leadership will push for policies that might limit economic growth (such as curbing immigration).

NZ Consumer Confidence and Producer Prices – Data Ahead for GBP NZD

Tomorrow will feature a number of data release pertaining to the UK and New Zealand, including the New Zealand consumer confidence figures and produce price index readings.

Markets will undoubtedly be watching these releases, with positive results liable to point to a strengthening ‘Kiwi’ economy and thus raise the chances of a rate hike from the RBNZ.

The UK’s retail sales figures are also due tomorrow, with the headline figure expected to contract from 1.6% to -0.4%.

If this materialises then the GBP NZD exchange rate could come under even more pressure, as it would illustrate that the UK economy remains under the thumb of soaring inflation levels and lagging wage growth – a combination that continues to weigh on British consumers