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The recent jump towards risk aversion within markets after North Korea’s latest missile launch wasn’t enough to prevent GBP NZD from slumping today after a one-two KO from disappointing UK house price growth and protracted Brexit talks.
Whilst the Pound was bolstered this morning by initial market reactions to the North Korean missile launch over Japan, it soon pared its gains after the release of some disappointing UK house price growth figures.
Nationwide reported that year-on-year house prices within the UK only demonstrated growth of 2.1% in August, down from July’s 2.9% and missing the forecast of 2.6%. In addition, the monthly figure contracted, printing at -0.1%, down from 0.2% and below the forecast of 0.2%.
This reading is a three-month low, and effectively underscores the fact that high inflation coupled with low wage growth is hurting consumer appetite.
Housing Data Significant In Quelling Concerns for NZD
New Zealand’s building permit figures for July will be released tonight, followed by the year-on-year QV house prices for August on Thursday and also New Zealand’s terms of trade index (currently predicted to print at 3.0%, down from the previous period’s 5.1%).
If a drop is revealed then the chance of a near-term interest rate hike from the Reserve Bank of New Zealand (RBNZ) will be seen as less likely and demand for the ‘Kiwi’ will fall.
Chris Turner, from ING, stated on the subject:
‘A further slowdown in house price growth (prior 6.4% YoY) would be a thumbs up to the RBNZ’s macro-prudential policies put in place last year’.
Indeed, if the terms of trade index also disappoints, as is currently forecast, then the Pound may well be afforded the space it needs to capitalise on the ‘Kiwi’.
Risk Aversion and North Korea – What Can we Expect for GBP NZD?
With tensions regarding North Korea, its neighbours, and the United States rising, markets are quickly shifting their resources to ‘safer’ investments to ride out the storm. So what can be expected?
Currently the New Zealand Dollar appears fairly resilient to risk aversion (much like its ‘Aussie’ counterpart) an oddity that can primarily be attributed to today’s drop in the US Dollar due to Storm Harvey and the significant amount of damage it has caused America’s energy industry.
In this sense, the near-term forecast for this pairing is partially dependent on two variables; North Korea’s activities and the speed by which markets again deem the US Dollar a safe-haven currency. Indeed, whilst Storm Harvey has passed, the rainfall has not, and the flooding remains a serious cause for concern (it has already knocked refineries in the region out-of-action, possibly for months).
However, if tensions with North Korea continue escalating (as many predict they will), investors could drop the higher-risk currencies in favour of comparative safe havens like the Pound and the US Dollar (pushing GBP NZD higher).