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GBP NZD Exchange Rate Outlook Could Improve if UK Growth Impresses

Pound Sterling Currency Forecast

The GBP NZD exchange rate tumbled in recent sessions as demand for risky currencies rose and the Pound failed to find any notable support from the latest UK data.

The Pound to New Zealand Dollar exchange rate began the week trading at around 1.7775. After trending flatly for a few days the pair dropped, and by Friday was trading near a weekly low of 1.7602.

Pound (GBP) Fails to Find Support in UK Data

Recent UK data was mixed, and as a result has had little lasting effect on the Pound outlook.

Still, investors now have a better idea of how Britain’s economy is performing.

Inflation is slower than expected and wage growth is faster than expected, but real wages continue to fall due to the large gap between the two, with inflation still well above wages.

While this means that the Bank of England (BoE) is unlikely to tighten UK monetary policy any time soon, it has increased hopes that UK wage growth will continue to rise.

Britain’s July retail sales results were mixed. The previous figures were revised down from 0.6% to 0.3% month-on-month and from 2.9% to 2.8% year-on-year.

While the monthly figure beat 0.2% expectations and came in at 0.3%, yearly retail sales only reached 1.3% and missed forecasts of 1.4%.

To some analysts, this was further evidence of the pay squeeze in action, causing consumers to rein in spending. Others argued that consumers were remaining resilient despite the pay squeeze.

Regardless, concerns remain about the potential of the pay squeeze having a long-term negative effect on Britain’s economic activity, which has limited Pound demand.

Data due in the coming week could influence the Pound outlook further.

Monday will see the publication of July’s public sector borrowing results, but the biggest incoming UK data will be the second Q2 Gross Domestic Product (GDP) projection.

If UK growth looks like it was better in Q2 than expected, the Pound could see stronger demand as investors perceive Britain’s economy as resilient.

However, slower growth would leave the Pound unappealing for yet another week, with the long-term outlook still poor too.

New Zealand Dollar (NZD) Supported by Risk-Sentiment

The New Zealand Dollar has seen stronger demand this week, as investors react to decent domestic data and cooling geopolitical jitters have left risky currencies appealing again.

While low in influence, New Zealand’s Q2 PPI results beat expectations. The Roy Morgan consumer confidence survey from August improved, rising from 125.4 to 126.2.

Prices of dairy, New Zealand’s most lucrative commodity, slipped again in the latest Global Dairy Trade (GDT) auction.

However, traders overlooked this as concerns about tensions between the US and North Korea cooled and investors returned to risk-correlated currencies like the ‘Kiwi’.

Risk-sentiment has also been bolstered by low Federal Reserve interest rate hike bets.

The New Zealand Dollar is likely to be influenced largely by market risk movements in the coming week amid a lack of highly influential domestic data on the way.

While New Zealand’s July trade balance results could influence the ‘Kiwi’ on Thursday, the long-term New Zealand Dollar outlook is unlikely to change much without surprising political or central bank news.

As a result, UK data and any potential political developments, potentially in Brexit talks, are most likely to influence GBP NZD next week.

GBP NZD Interbank Rate

At the time of writing this article, the GBP NZD exchange rate trended in the region of 1.7604. The New Zealand Dollar to Pound exchange rate traded at around 0.5680.